An increase in the price of oil relative to manufactured goods will cause production of manufactured goods to ____________________ and production of oil to ____________________.

Question

Quizplus · Accepted Answer

When the price of oil increases relative to manufactured goods, the cost of production for manufactured goods increases. As a result, firms producing manufactured goods may reduce their production to avoid higher costs, leading to a fall in production of manufactured goods. On the other hand, the higher oil prices make oil production more profitable, thus leading to an increase in oil production. Therefore, the correct choice is A.

An Increase in the Price of Oil Relative to Manufactured