Suppose That Large Oil Reserves Are Discovered Off the Coast

question 20

Multiple Choice

Suppose that large oil reserves are discovered off the coast of Cuba, and these reserves will increase the world's supply of oil by 2.5 percent. If the elasticity of demand and supply of oil are 0.50 and 0.40, respectively, what happens to the price of oil?

• A) It falls by 2.5 percent.
• B) It falls by 25 percent.
• C) It falls by 2.78 percent.
• D) It falls by 36 percent.

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Definitions:

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