Suppose that war in the Middle East reduces the supply of oil, forcing the country to economize on oil. How would a central planner optimize the economic problem under this situation?
A) shift oil out of uses for which good substitutes for oil exist
B) supply oil for uses for which good substitutes for oil exist
C) increase demand for oil in all production processes
D) decrease supply for oil in all production processes

Question

Quizplus · Accepted Answer

If war in the Middle East reduces the supply of oil, a central planner would optimize the economic problem by shifting oil out of uses for which good substitutes for oil exist. This is because using oil for production processes that have good substitutes for oil would not be efficient and would lead to unnecessary waste of the scarce resource. By reallocating oil to uses that do not have good substitutes, the country can maximize the benefit derived from the limited amount of oil available.

Suppose That War in the Middle East Reduces the Supply