If there is an oil-supply disruption resulting in higher : GMAT Critical Reasoning (CR)
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# If there is an oil-supply disruption resulting in higher

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01 Nov 2004, 12:27
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Official Guide for GMAT Verbal Review, 2nd Edition

Practice Question
Question No.: 58
Page: 140
Difficulty:

If there is an oil-supply disruption resulting in higher international oil prices, domestic oil prices in open-market countries such as the United States will rise as well, whether such countries import all or none of their oil.

If the statement in the passage concerning oil-supply disruptions is true, which of the following policies in an open-market nation is most likely to reduce the long-term economic impact on that nation of sharp and unexpected increases in international oil prices?

A. Maintaining the quantity of oil imported at constant yearly levels

B. Increasing the number of oil tankers in its fleet

C. Suspending diplomatic relations with major oil-producing nations

D. Decreasing oil consumption through conservation

E. Decreasing domestic production of oil
[Reveal] Spoiler: OA

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Last edited by Narenn on 07 Oct 2013, 09:03, edited 1 time in total.
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01 Nov 2004, 13:31
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Open market(As I understand it) : A market where the seller is free to set any price and the price is not subject to government regulations. Also anyone can sell in that market.

If there is sharp increase in the price of oil in the international
market then what happens in the different countries ?

1) Countries which import oil - They will be affected because they will now
pay higher price.

2) Countries which import no oil at all - Means they either have oil
sufficient to cater to local market and may have extra oil to export.
Here if the international prices rise then local producers might export
oil to earn bigger profits and local consumer will suffer. In fact
oil prices will rise here also because there is less oil available for
consumption.

So whether or not a country imports oil that country will suffer if the
international prices rise.

The best way to counter this problem is decrease consumption through
conservation.

If oil consummption is decreased then countries which import oil will
suffer less and also those countries which import no oil will not suffer
more.

I hope my explanation matches with OA and is acceptable.
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02 Nov 2004, 00:53
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D for me.

Two issues - Oil Prices and Oil distribution.

Open market policy dictates pricing depending on Oil availability/supply/disruption / such situtations. No one can do anything about it.

High oil prices and uncertain supplies are a typical problem not only for the United States, but also for the world economy. What's the best way to control it? Yep - Can be controlled by conservation.

Quick note on Open market oil policy (leisure read)
Oil prices are determined by the trading of 1,000-barrel contracts of West Texas Intermediate oil in an open market bid system on the New York Mercantile Exchange. Worldwide prices are adjusted from this price for oil quality and distance from markets. Oil producers, mostly governments, sell their oil into this world market system and refiners buy from it for oil to refine into products for their customers. The ownership of a particular barrel of oil may change several times between production and refining. This is a worldwide, largely open market; oil companies have little or no influence on these prices and participate in the trading market on the same basis as any other trader or investor.
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02 Nov 2004, 01:46
D. Decreasing oil consumption through conservation
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02 Nov 2004, 06:57
OA is infact D.

Thanks anand once again for your lovely explanation. I understood perfectly.

Venksune, thanks for your little note on the open market system. It made me understand the entire concept better.

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02 Nov 2004, 07:52
Oil prices are going to increase no matter what, when the prices in the open market increases. So the best way to minimize impact is to reduce consumption.

D.
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24 Jul 2006, 08:39
If there is an oil-supply disruption resulting in higher international oil prices, domestic oil prices in open-market countries such as the United States will rise as well, whether such countries import all or none of their oil.

If the statement above concerning oil-supply disruptions is true, which of the following policies in an open-market nation is most likely to reduce the long-term economic impact on that nation of sharp and unexpected increases in international oil prices?

(A) Maintaining the quantity of oil imported at constant yearly levels
(B) Increasing the number of oil tankers in its fleet
(C) Suspending diplomatic relations with major oil-producing nations
(D) Decreasing oil consumption through conservation
(E) Decreasing domestic production of oil
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24 Jul 2006, 08:49
I believe this is OG question...

I think it is b/w D and E... I choose D because we don't know that US produces oil, according to this argument

(A) out of scope
(B) oil tankers w/out oil make no sense
(C) and what will be achieved by doing so?
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24 Jul 2006, 09:29
mailtheguru wrote:
If there is an oil-supply disruption resulting in higher international oil prices, domestic oil prices in open-market countries such as the United States will rise as well, whether such countries import all or none of their oil.

If the statement above concerning oil-supply disruptions is true, which of the following policies in an open-market nation is most likely to reduce the long-term economic impact on that nation of sharp and unexpected increases in international oil prices?

(A) Maintaining the quantity of oil imported at constant yearly levels
(B) Increasing the number of oil tankers in its fleet
(C) Suspending diplomatic relations with major oil-producing nations
(D) Decreasing oil consumption through conservation
(E) Decreasing domestic production of oil

I think it' A..to reduce the long-term economic impact ...longtermly, oil consumption and domestic production of oil will be stable in domestic market. If there is stable oil supply, it can reduce long term economic impact....(hope so)
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24 Jul 2006, 09:41
D it is.

A. If countries continue to import then the burden will increased on the country as well as consumers.
B and C: Out of scope
E. If the local production is reduced then prices will rise more in the local market and hence its not the solution.

Best would be to conserve. By this way countries that import oil will import less and increase in oil prices wil be offset by the savings because of conservation. Countries that don't import oil will atleast not suffer more.
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24 Jul 2006, 11:09
It should be D. Decreasing oil consumption will alleviate the impact of oil supply disruption.
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24 Jul 2006, 16:06
Good job guys

D is the OA
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24 Jul 2006, 22:16
I do not think this should be a GMAT questyon type too specificas a question btw I will go for D
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03 Apr 2007, 18:43
If there is an oil-supply disruption resulting in higher international oil prices, domestic oil prices in open-market countries such as the United States will rise as well, whether such countries import all or none of their oil.

If the statement above concerning oil-supply disruptions is true, which of the following policies in an open-market nation is most likely to reduce the long-term economic impact on that nation of sharp and unexpected increases in international oil prices?
(A) Maintaining the quantity of oil imported at constant yearly levels
(B) Increasing the number of oil tankers in its fleet
(C) Suspending diplomatic relations with major oil-producing nations
(D) Decreasing oil consumption through conservation
(E) Decreasing domestic production of oil
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03 Apr 2007, 18:45
D. By decreasing the reliance on oil, the impact of a price increase will not be felt so strongly.
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Re: CR - oil supply disruption [#permalink]

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03 Apr 2007, 20:31
amd08 wrote:
If there is an oil-supply disruption resulting in higher international oil prices, domestic oil prices in open-market countries such as the United States will rise as well, whether such countries import all or none of their oil.

If the statement above concerning oil-supply disruptions is true, which of the following policies in an open-market nation is most likely to reduce the long-term economic impact on that nation of sharp and unexpected increases in international oil prices?
(A) Maintaining the quantity of oil imported at constant yearly levels - country has to pay the increased price - rejected
(B) Increasing the number of oil tankers in its fleet - same
(C) Suspending diplomatic relations with major oil-producing nations - - can adversely affect
(D) Decreasing oil consumption through conservation - correct - by reducing the consumption country can reduce the total oil import
(E) Decreasing domestic production of oil
- can seriously affect the prices
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04 Apr 2007, 03:06
I will also go for D.
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04 Apr 2007, 03:16
D! By reducing the need for oil, this will allow for more oil to be distributed to other countries and reducing the disruption.
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04 Apr 2007, 06:29
D states the current problem with oil as well
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04 Apr 2007, 07:03
D.
04 Apr 2007, 07:03

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