Question

A shift in the supply curve for gasoline in the United States would result if (LO5) a) people decided to travel more by automobile b) the OPEC nations decided to stop sales of crude oil to the United States c) the price of gasoline increased d) the price of gasoline decreased e) the price of mass transit increased

Short answer

The correct answer is (b) The OPEC nations decided to stop sales of crude oil to the United States. This event would result in a shift in the supply curve for gasoline because it affects the production cost of gasoline, given that crude oil is a major input in the production of gasoline.

Step-by-step solution

Option A: People decided to travel more by automobile.

This option talks about an increase in the demand for gasoline, but it does not directly affect the supply curve. So this option does not result in a shift in the supply curve for gasoline.

Option B: The OPEC nations decided to stop sales of crude oil to the United States.

This option affects the production cost of gasoline since crude oil is a major input in the production of gasoline. If the OPEC nations decide to stop selling crude oil to the United States, the production cost of gasoline will increase, resulting in a shift in the supply curve for gasoline in the United States.

Option C: The price of gasoline increased.

This option refers to a change in the price of the prevailing equilibrium, which does not affect the supply curve itself. The supply curve shows the relationship between the price of the good and the quantity supplied. A change in the price level moves along the supply curve but does not shift it.

Option D: The price of gasoline decreased.

Similar to option C, this option refers to a change in the price of the prevailing equilibrium, which does not affect the supply curve itself. A decrease in the price of gasoline moves along the supply curve but does not shift it.

Option E: The price of mass transit increased.

This option would affect the demand for gasoline as a substitute for mass transit, but it does not directly affect the supply curve of gasoline. So this option does not result in a shift in the supply curve for gasoline. #Step 2: Choose the Correct Answer#

Correct Answer

Based on the analysis of the options, the correct answer is: b) The OPEC nations decided to stop sales of crude oil to the United States.

Key concepts

Crude Oil

Crude oil is a naturally occurring liquid found beneath the Earth's surface, often referred to as "black gold" because of its high economic value. It is a complex mixture of hydrocarbons that can be refined into various products such as gasoline, diesel, and kerosene. The journey from crude oil to gasoline involves several steps, including extraction, transportation, and refining.
The primary source of crude oil is geological formations, and it is typically accessed through drilling. Once extracted, it is transported to refineries where it undergoes a process called fractional distillation. This process separates the crude oil into different components, or fractions, based on their boiling points.
Crude oil prices are subject to fluctuations due to various factors such as geopolitical events, natural disasters, and changes in global demand. These changes can directly impact the price and supply of gasoline, as gasoline is one of the most common products derived from crude oil. In the context of our exercise, if OPEC nations decide to restrict the supply of crude oil to the United States, this would likely increase gasoline production costs and shift the supply curve to the left, indicating a decrease in supply.

Gasoline

Gasoline is a liquid fuel primarily used as a power source for internal combustion engines. It is made from refining crude oil through a process involving distillation and various chemical treatments. Gasoline's performance and efficiency make it the most common fuel choice for vehicles around the world.
The supply curve for gasoline represents the relationship between the price of gasoline and the quantity that suppliers are willing to produce and sell at those prices. A shift in the supply curve can be caused by several factors, other than price changes, which are reflected as movements along the curve. Factors that can shift the gasoline supply curve include changes in production costs, technological advancements, or changes in government policies.

• Increase in Production Costs: If input costs, such as crude oil, rise, the supply curve shifts left, indicating fewer quantities are supplied at every price level.
• Technological Advancements: Improved refining technology could reduce costs and increase supply, shifting the curve right.
• Policy Changes: Environmental regulations might increase production costs, affecting supply.

In summary, the supply curve is a powerful tool for understanding how different factors affect the market for gasoline. In our exercise, when OPEC nations stop supplying crude oil, it impacts the cost of producing gasoline, thus shifting the curve.

OPEC Nations

OPEC, or the Organization of the Petroleum Exporting Countries, is an intergovernmental organization of oil-producing countries. It was founded in 1960 to coordinate and unify petroleum policies among its member nations to secure fair and stable prices for petroleum producers. The organization plays a significant role in determining global oil prices due to its control over a substantial portion of the world's oil reserves.
The decisions made by OPEC, such as adjusting the oil production quotas or choosing to embargo oil sales to certain countries, can have far-reaching effects on global oil prices and availability. This is because OPEC's member countries collectively hold about 79% of the world's proven crude oil reserves and control more than 40% of the world's oil production.
When OPEC nations decide to restrict the oil supply, as in the exercise scenario, this can decrease the oil available for refining into gasoline. This reduction can increase the cost of crude oil, subsequently raising gasoline prices. Such decisions can lead to a leftward shift in the gasoline supply curve, indicating that less gasoline is available at every price level, thus demonstrating the interconnectedness of global oil markets and local economies.