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22 Aug 2007, 19:03
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The oil wells of Barlandia produced so much oil that the market was overwhelmed; consumption did not keep pace with production. As a result, oil prices fell. The government of Barlandia attempted to support oil prices through a subsidy scheme: oil producers who voluntarily limited the amount of oil they produced were compensated directly by the government up to a specified maximum payment.
The program instituted by the government of Barlandia, if successful, will not be a net cost to the government. Which of the following, if true, is the best basis for an explanation of how this could be true?
a) Depressed oil prices meant operating losses for oil producers, decreasing the income of oil producers, and thus decreasing the taxes paid to the government by oil producers.
b) Oil production in countries other than Barlandia declined in the same year that Barlandia's government instituted the compensatory scheme.
c) In the first quarter after Barlandia's government instituted the compensatory scheme, oil production declined 8 percent.
d) Because the government specified a maximum subsidy payment per oil producer, those producers with numerous wells in production received less support per well than those producers with fewer wells in production.
e) Oil producers desiring to qualify for the compensatory scheme could not continue to produce oil and simply withhold it from the market.
The program instituted by the government of Barlandia, if successful, will not be a net cost to the government. Which of the following, if true, is the best basis for an explanation of how this could be true?
a) Depressed oil prices meant operating losses for oil producers, decreasing the income of oil producers, and thus decreasing the taxes paid to the government by oil producers.
b) Oil production in countries other than Barlandia declined in the same year that Barlandia's government instituted the compensatory scheme.
c) In the first quarter after Barlandia's government instituted the compensatory scheme, oil production declined 8 percent.
d) Because the government specified a maximum subsidy payment per oil producer, those producers with numerous wells in production received less support per well than those producers with fewer wells in production.
e) Oil producers desiring to qualify for the compensatory scheme could not continue to produce oil and simply withhold it from the market.
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22 Aug 2007, 20:31
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above720
Clear A.
The argument is talking about government "net cost". If you look at the question, the answer should be that the government would have somehow get replacement for the money they spend.
In A, the government will get money back because they will get the tax from the oil producer's income.
