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15 June, 01:11

During the last few years we have seen a rise in the production of natural gas in the United States. This lead to a decline in the price of natural gas. If we assume that the price of oil remained roughly the same, this also lead to a reduction in the ratio of the price of natural gas to the price of oil. This resulted in a substitution from oil to natural gas in some production processes. Which of the following statements is incorrect in describing this scenario (assume that all else is held constant):

A. The demand for oil changed

B. The quantity demanded of oil decreased

C. The quantity demanded of natural gas increased

D. The demand for oil decreased

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Answers (1)
  1. 15 June, 04:51
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    Answer: The correct answer is "B. The quantity demanded of oil decreased".

    Explanation: The statement "B. The quantity demanded of oil decreased" is incorrect in describing this scenario because a change in the quantity demanded would be caused by a change in the price, in this case the price of oil remained more or less the same, therefore the change is in demand, and is produced at the price of a substitute good (natural gas) low.
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