42 Supply and Demand Analysis: an Oil Import Fee

question 114

Multiple Choice

4.2 Supply and Demand Analysis: An Oil Import Fee
Refer to the information provided in Figure 4.4 below to answer the questions that follow. Figure 4.4
-Refer to Figure 4.4. If the United States levies no taxes on imported oil, which of the following would occur?

• A) The price of oil in the United States would fall to $100 per barrel, and the United States would import 10 million barrels of oil per day.
• B) The price of oil in the United States would be $125 per barrel, and the United States would import 6 million barrels of oil per day.
• C) The price of oil in the United States would be $150 per barrel, and the United States would import 2 million barrels of oil per day.
• D) The price of oil in the United States after the U.S. government eliminated all taxes on imported oil cannot be determined from this information.

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Definitions:

Call Option

A financial contract that gives the buyer the right, but not the obligation, to buy an underlying asset at a specified price within a certain time frame.

Transactions Costs

Expenses incurred when buying or selling goods or services, including the costs of trading financial instruments.

Upper Bound

The highest possible value or limit that a variable, function, or sequence can reach in a given context.

Market Value

The ongoing cost for buying or selling an asset or service within a market platform.