Suppose That a Dispute in the Persian Gulf Halts the Sale

question 2

Multiple Choice

Suppose that a dispute in the Persian Gulf halts the sale of oil from the Persian Gulf for one year.At the same time an important new oil field is found in a place where nobody expected there to be oil.What does economic theory predict will be the effect on the future price of oil to be delivered two years from now?

• A)It will fall if the new pool is larger than the stock of oil in the Persian Gulf and rise otherwise.
• B)It will fall.
• C)It will rise unless the new pool can be brought into production before the Persian Gulf supply is resumed.
• D)It will rise.
• E)It will rise if the cost of extraction for the new oil is greater than the cost of extraction in the Gulf and fall otherwise.

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Definitions:

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