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:

Alcoholism

A chronic disease characterized by uncontrolled drinking and a preoccupation with alcohol.

Gross Sales

The total amount of sales recorded before any deductions for returns, allowances, or discounts.

Sales Discounts

A reduction in the price of a product or service that is offered by the seller, often to prompt early payment or bulk purchases.

Sales Returns

Transactions involving the return of sold goods by customers, resulting in a reduction of revenue.