When OPEC raises the price of petroleum, American expenditures on oil imports increase, suggesting that
A)the United States' elasticity of demand for imported oil is greater than one.
B)the United States' elasticity of demand for imported oil is less than one.
C)imported oil and domestically produced oil are complementary goods.
D)the short-run elasticity of demand for oil is greater than the long-run elasticity.

Question

Quizplus · Accepted Answer

When OPEC raises the price of petroleum, American expenditures on oil imports increase, indicating that the United States' elasticity of demand for imported oil is less than one. This means that a price increase leads to a proportionately smaller decrease in the quantity demanded. In other words, the demand for imported oil is relatively inelastic, and consumers are willing to pay a higher price for a given amount of oil.

When OPEC Raises the Price of Petroleum, American Expenditures on Oil