Question

Ollman Boone Pickins has proposed a plan to build farms in the center of the United States to produce about 20 percent of the consumed in the United States to replace that same percentage of electricity currently produced by natural gas. The natural gas Saved would be used to replace gasoline to run cars and light trucks. According to Pickins, oil imports could be reduced by one-third. The United States currently uses about 25 percent of global oil production.

Explain how plan would affect the global price of oil if it were to be successfully implemented.

Answer 1

The price will decrease

Step-by-step explanation:

A successfully implemented plan has the capacity of reducing the oil imported by one-third of the current 25% of the global oil production

Therefore, the produced oil which is not in demand which is the excess supply of oil is found as follows;

Excess oil supply = (1/3) × 25% of global oil production = 8.
`\bar 3`% of global oil production

According to the law of demand and supply as the quantity of oil supplied increases while the quantity demanded and the amount of money available to purchase the oil remains the same, the price of the oil will drop to restore equilibrium equilibrium between demand and supply