4.2 Supply and Demand Analysis: An Oil Import Fee
Refer to the information provided in Figure 4.4 below to answer the questions that follow. Figure 4.4
-Refer to Figure 4.4. Assume that initially there is free trade. If the United States allowed drilling for more oil in the Gulf of Mexico, it could
A) reduce U.S. oil imports without a tax.
B) decrease the demand for domestic oil.
C) reduce the supply of domestic oil.
D) increase the domestic price of oil.

Question

4.2 Supply and Demand Analysis: An Oil Import Fee
Refer to the information provided in Figure 4.4 below to answer the questions that follow.  Figure 4.4
-Refer to Figure 4.4. Assume that initially there is free trade. If the United States allowed drilling for more oil in the Gulf of Mexico, it could
A) reduce U.S. oil imports without a tax. 
B) decrease the demand for domestic oil. 
C) reduce the supply of domestic oil. 
D) increase the domestic price of oil.

Quizplus · Accepted Answer

Allowing drilling for more oil in the Gulf of Mexico will increase the domestic supply of oil, which can then be used to reduce U.S. oil imports without the need for a tax. Therefore, option A is the best choice. Option B and C are incorrect because increasing the domestic supply of oil will not decrease the demand for domestic oil or reduce the supply of domestic oil. Option D is also incorrect because increasing the domestic supply of oil will most likely decrease the domestic price of oil.

42 Supply and Demand Analysis: an Oil Import Fee