Suppose the Price of Oil in Texas Is Initially $30

question 158

Multiple Choice

Suppose the price of oil in Texas is initially $30 per barrel.New Mexico builds several large oil-burning power plants.This causes the price of oil in New Mexico initially to rise to $35 per barrel.According to the law of one price,what can we expect to happen to the price of oil in Texas and New Mexico,respectively,over the long run? Assume that it is difficult to transport oil from Texas to New Mexico.

• A) The price will settle between $30 and $35 per barrel in both Texas and New Mexico,but the prices will likely remain different.
• B) The price will eventually be $30 in both Texas and New Mexico.
• C) The price will eventually be the same,$30 plus shipping costs,in both Texas and New Mexico.
• D) The price will settle between $30 and $35 a barrel in both Texas and New Mexico,but the prices will be the same.
• E) The price will eventually be $35 in both Texas and New Mexico.

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Definitions:

Exports

Exports refer to goods or services produced in one country and sold to buyers in other countries, contributing to the exporting country's economy.

Outsourcing

The business practice of hiring a party outside a company to perform services or create goods that traditionally were performed in-house by the company's own employees.

Manufacturing

The activities and processes used in making tangible products; also called production.