There is an OPEC cartel that reduces the production of world oil by several million barrels a day.Which of the following correctly captures the effect of this change on the market for gasoline?
A)Both equilibrium quantity and price will increase.
B)Both equilibrium quantity and price will decrease.
C)Equilibrium quantity will increase,but equilibrium price will decrease.
D)Equilibrium quantity will decrease,but equilibrium price will increase.

Question

Quizplus · Accepted Answer

If OPEC reduces the production of world oil, this will lead to a decrease in the supply of crude oil, which will increase the price of crude oil. Since gasoline is derived from crude oil, the cost of producing gasoline will rise, which will decrease the supply of gasoline. This decrease in supply will lead to an increase in the price of gasoline. As a result, the equilibrium quantity of gasoline will decrease, and the equilibrium price will increase. Therefore, the correct answer is D.

There Is an OPEC Cartel That Reduces the Production of World