In 1990 the UN places trade sanctions on Iraqi oil. In 1996 Iraq is allowed limi
ID: 1223454 • Letter: I
Question
In 1990 the UN places trade sanctions on Iraqi oil. In 1996 Iraq is allowed limited exports of oil to make war reparations payments. What is the likely effect of the two events on equilibrium price and quantity of oil? A. Price rises initially then falls partially back toward the initial price, quantity falls then rises partially back toward the initial quantity. B. Price falls initially then rises partially back toward the initial price, quantity rises then falls partially back toward the initial quantity. C. Price falls initially then rises partially back toward the initial price, quantity falls then rises partially back toward the initial quantity. D. Price rises initially then falls partially back toward the initial price, quantity rises then falls partially back toward the initial quantity.
Explanation / Answer
The quantity of oil supplied in the world oil market will decline initially and the quantity will also decline. But with the rise in the prices, other firms will enter the oil market and supply will increase and thus prices will come back to its equilibrium level and quantity supplied will also rise.
Option A.The answer is in consideration of world oil market.