Consider the market for petrol. Which of the following changes would most likely lead to a decrease in supply?Group of answer choices(a) An increase in the price of petrol cars.(b) The cost of oil refinery increases.(c) A war in Iraq damages over 600 oil wellsBoth b and c are correctNone of the options in this list.
Question
Consider the market for petrol. Which of the following changes would most likely lead to a decrease in supply?Group of answer choices(a) An increase in the price of petrol cars.(b) The cost of oil refinery increases.(c) A war in Iraq damages over 600 oil wellsBoth b and c are correctNone of the options in this list.
Solution
Both b and c are correct.
Explanation: Supply in economics is determined by the cost of production. If the cost of production increases, the supply decreases because it becomes less profitable for firms to produce the same quantity at the same price.
Option (b) states that the cost of oil refinery increases. This means that the cost of producing petrol has increased, which would lead to a decrease in supply.
Option (c) states that a war in Iraq damages over 600 oil wells. This would also lead to a decrease in supply because the raw material for petrol (crude oil) has become less available, increasing the cost of production.
Option (a) is not correct because the price of petrol cars would affect the demand for petrol, not the supply.
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