Consumer Response to a Gasoline Price Shock

A well-established public utility company has consistent, stable profits but operates in a mature market with very few opportunities for high-return expansion projects. In contrast, a young biotechnology firm has just become profitable and operates in a rapidly growing industry with numerous promising research and development projects. Considering the primary goal of maximizing shareholder value, which of the following statements best justifies a likely profit allocation decision for the utility company?

A major, long-lasting geopolitical event causes the global price of crude oil to permanently double. Which statement best analyzes the likely effect on the quantity of oil demanded over different time horizons?

Time Horizons and Oil Demand

A city's government unexpectedly closes a major bridge for a two-year-long repair project, causing severe traffic congestion and doubling the commute time for thousands of drivers. Which of the following describes the most likely pattern of behavioral adjustments by commuters over time?

Evaluating Policies to Reduce Fuel Consumption

A country experiences a sudden and sustained 50% increase in the price of gasoline. Arrange the following consumer responses in the order they are most likely to occur, from the most immediate (short-run) to the most delayed (long-run).

A government announces a new, small tax on gasoline that will be in effect for only one month. This policy is expected to cause a large and immediate decrease in the total quantity of gasoline consumed.

A global supply shock causes the price of crude oil to increase by 75% and remain high. In the initial six months following the price hike, the total quantity of oil consumed worldwide decreases by only 5%. However, five years later, the total quantity consumed is 25% lower than before the price increase. Which statement best analyzes the economic principle behind this difference in consumer response over time?

A sustained increase in the price of oil leads to various changes in consumer and business behavior. Match each of the following actions to the time frame in which it is most likely to occur as a response.