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Question

How would 'Standard Oil' respond to an expected change in oil prices?



Your Answer
A

Supply increases if a price hike is expected

Correct Answer
B

Supply decreases if a price hike is expected

Correct Answer
C

Supply increases if a fall in price is expected

Your Answer
D

Supply decreases if a fall in price is expected


Solution

The correct options are
B

Supply decreases if a price hike is expected


C

Supply increases if a fall in price is expected


If a price hike is expected, a firm would supply less and store for the future. If a fall in price is expected, a firm would supply more to sell out its stock. Both choices are driven by a desire to maximize profit. In contrast, a consumer would by more when there is an expected price hike and buy less when there is an expected fall in price.

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