Suppose the price of gasoline and other petroleum products declines sharply. Which of the following will most likely occur as a result of the lower petroleum prices?
A) an increase in demand for solar heating systems
B) an increase in demand for larger, more powerful automobiles
C) an increase in demand for home insulation products
D) an increase in demand for gasoline

Question

Quizplus · Accepted Answer

When the prices of gasoline and other petroleum products decrease, people tend to buy larger, more powerful cars that consume more fuel. This is because the cost of operating such vehicles decreases, making them more affordable to use. Therefore, an increase in demand for larger, more powerful automobiles is likely to occur. The other options (A, C, and D) are unlikely to occur because lower petroleum prices reduce the incentives to invest in alternative energy sources such as solar heating systems, home insulation products, and gasoline respectively.

Suppose the Price of Gasoline and Other Petroleum Products Declines