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Which of the following statements below support how revenues of the relevant firms would change given the following events: Oil well in Eastern Pennsylvania close because of environmental violations reducing the annual revenue to drillers in eastern Pensylvania but a war in the Middle east shuts down oil wells across the entire Middle East and raises the revenue of Non Middle Eastern Producers.

Statements:

  • The price elasticity of demand for oil is inelastic so a major decrease in world supply caused by War will cause the price of oil to rise by a greater percentage than the decrease in quantity demanded
  • The loss of oil wells in eastern Pennsylvania will also cause the world price of oil to rise but by a smaller percentage than the decrease in quantity sold worldwide.
  • The price elasticity of demand for oil is elastic so a major decrease in world supply due to War will cause the price of oil to rise by a greater percentage than the decrease in quantity sold.
  • The loss of oil wells in eastern Penn will have almost no effect on world price although the revenue of eastern Penn producers will fall.

Answer choices:

  • Only statement 1 is true
  • Only statement 4 is true
  • Statements 1 and 3 are true
  • Statements 1 and 4 are true

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M91521878
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