Paul wrote:
The U.S. gets 5 percent of its oil from Mexico. If Mexico raises the price of its oil by 20 percent, that will result in an increase of 1 percent (5 percent times 20 percent) in the price of oil products in the U.S.
Which of the following is an assumption upon which the above argument depends?
A) Oil prices in the U.S. are not affected by inflation in Mexico
B) Other countries will not increase oil exports to the U.S.
C) The price increase will not result in a decrease in the sales of Mexican oil products
D) People will not substitute other products for those made from Mexican oil
E) A 1 percent price increase in oil products will not be recognized by the buying public
I believe it's C:
The formula for increase in oil price depends on two factors
Percent of Mexican oil in US oil imports
&
Increase in price of Mexican oil
We know Increase in price is definitely: 20%
But, if the sales of Mexico plummets; it would mean US is importing less oil from Mexico dropping the Mexican oil percentage in US oil export below 5; maybe 4 or even 1; who knows;
Let's say it becomes 1 i.e. Percent of mexican oil in us=1%
Thus the formula should ideally become: 20*1= 20; increasing the oil prices by only 1/5 th of a percent.
Ans: "C"