In 2010, a British Petroleum oil rig exploded in the Gulf of Mexico. The explosion resulted in a major oil spill and a decrease in the supply of oil. At the same time, the average price of gasoline decreased. Which of the following best explains the decrease in the price of gasoline?
A) The quantity demanded of gasoline increased.
B) The demand for gasoline decreased, and the effect of the decrease in demand on the gasoline price was greater than the price effect of the decrease in supply.
C) The demand for gasoline increased, and the effect of the increase in demand on the gasoline price was less than the price effect of the decrease in supply.
D) The demand for gasoline remained unchanged.

Question

Quizplus · Accepted Answer

The decrease in the supply of oil resulted in a decrease in the supply of gasoline, which led to an increase in the price of gasoline. However, the decrease in the demand for gasoline due to the negative publicity surrounding the oil spill was greater than the decrease in supply, which resulted in an overall decrease in the price of gasoline. Therefore, the most plausible explanation is that the demand for gasoline decreased, and the effect of the decrease in demand on the gasoline price was greater than the price effect of the decrease in supply.

In 2010, a British Petroleum Oil Rig Exploded in the Gulf