In 1990 the UN placed trade sanctions on Iraqi oil. In 1996, Iraq was allowed limited export of oil to make war reparations. What was the predicted effect of the two events on equilibrium price and quantity of oil?
A) The price fell initially, then rose (failing to return to its former low level); quantity fell and then rose
B) The price fell initially, then rose (failing to return to its former low level); quantity rose and then fell
C) The price rose initially, then fell (failing to regain its former losses); quantity fell and then rose
D) The price rose initially, then fell (failing to regain its former losses); quantity rose, then fell

Question

Quizplus · Accepted Answer

The sanctions in 1990 reduced the supply of oil, causing the price to rise and quantity to fall. In 1996, allowing limited exports increased supply, causing the price to fall and quantity to rise, but not to previous levels.

In 1990 the UN Placed Trade Sanctions on Iraqi Oil