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# If there is an oil-supply disruption resulting in higher international

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Senior Manager
Joined: 19 Oct 2004
Posts: 308
Location: Missouri, USA
If there is an oil-supply disruption resulting in higher international  [#permalink]

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Updated on: 23 Dec 2018, 06:44
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Difficulty:

25% (medium)

Question Stats:

73% (01:20) correct 27% (01:34) wrong based on 1573 sessions

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Project CR Butler:Day 48:Critical Reasoning (CR1)

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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

Official Guide for GMAT Verbal Review, 2nd Edition

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

Same passage with other question: LINK

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Let's get it right!!!!

Originally posted by ruhi on 01 Nov 2004, 12:27.
Last edited by gmat1393 on 23 Dec 2018, 06:44, edited 4 times in total.
Renamed the topic and edited the question.
##### Most Helpful Community Reply
SVP
Joined: 30 Oct 2003
Posts: 1739
Location: NewJersey USA
Re: If there is an oil-supply disruption resulting in higher international  [#permalink]

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01 Nov 2004, 13:31
10
5
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.

With this definition I proceed to answer your question.

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.
##### General Discussion
Director
Joined: 16 Jun 2004
Posts: 872
Re: If there is an oil-supply disruption resulting in higher international  [#permalink]

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02 Nov 2004, 00:53
1
1
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.
VP
Joined: 14 May 2006
Posts: 1312
Re: If there is an oil-supply disruption resulting in higher international  [#permalink]

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24 Jul 2006, 08:49
1
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?
Verbal Forum Moderator
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Re: If there is an oil-supply disruption resulting in higher international  [#permalink]

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19 Dec 2016, 19:19
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?

Pre-thinking-
In an open market, the domestic oil producers will try to export their in order to maximize their profits . So the government can
- Reduce the oil consumption by encouraging usage of alternative energy
- Impose sanctions/taxes against export of domestic oil - This may not be a viable option in an open market

A. Maintaining the quantity of oil imported at constant yearly levels - This will not help and domestic market will still be susceptible to fluctuations in international crude price

B. Increasing the number of oil tankers in its fleet - It does not help

C. Suspending diplomatic relations with major oil-producing nations - It does not help

D. Decreasing oil consumption through conservation - Correct - decreasing consumption or moving towards alternative energy

E. Decreasing domestic production of oil - It means the country has to import more oil if the domestic demand is at the same level

Answer D
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Re: If there is an oil-supply disruption resulting in higher international  [#permalink]

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18 Dec 2018, 05:12
Hello from the GMAT Club VerbalBot!

Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

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Re: If there is an oil-supply disruption resulting in higher international &nbs [#permalink] 18 Dec 2018, 05:12
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# If there is an oil-supply disruption resulting in higher international

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