Question

Rising oil prices worry U.S. finance chiefs

  

​Tupperware's CFO says rising oil prices would cause the company to pay​ $15 million more for resin than it did a year ago. Resin prices are closely tied to the price of​ oil, which peaked at​ $114 a barrel in​ April, 2011.

  

​Source:The

Wall StreetJournal​,

June​ 27, 2011

   

  

Suppose that the government puts a price cap on resin at the resin price in 2010.    

We would expect a shortage of resin in 2011 because the rise in the price of oil in 2011​ ______ resin.

  

A.

increases the supply of

B.

decreases the demand for

C.

decreases the supply of

D.

increases the demand for

E.

decreases the demand for and decreases the supply of

With the resulting​ shortage, the quantity of resin ▼

supplied

demanded

is less than the quantity of resin ▼

supplied

demanded

.

   

With a price cap on resin at its 2010​ price, the allocation method most likely to be used to distribute resin is​ ______.

   

If the resin is rationed by the​ government, the allocation method is​ ______.   

A.

​first-come, first-served; market price

B.

market​ price; command

C.

market​ price; lottery

D.

market​ price; market price

E.

​first-come, first-served; command

Answer 1

Question 1

Price cap would deter the firms to pass on increase in the price of oil to price of resin.

This will impact the cost of producing resin in adverse manner and would induce the firms to reduce production leading to decrease in supply.

So,

We would expect a shortage of resin in 2011 because the rise in the price of oil in 2011 is due to the decrease in the supply of resin.

Hence, the correct answer is the option (c).

Question 2

Shortage occurs when the quantity demanded exceeds the quantity supplied.

So,

With the resulting shortage, the quantity of resin Supplied is less than the quantity of resin demanded.

Question 3

With a price cap on resin at its 2010 price, the allocation method is most likely to be used to distribute resin is first-come, first-served.

If the resin is rationed by the government, the allocation method is command.

Hence, the correct answer is the option (E).