Question

Mr. Spacek runs a stationery supply business from Ohio. He exports stationery to countries in Latin America. Changes in oil prices have a direct impact on his business costs. Why do you think changes in oil prices affect Mr. Spacek’s business?

A.
the transaction costs may decrease
B.
the transportations costs may increase
C.
the time lag and its related costs may widen
D.
the acceptable tariffs and quotas may be affected

Answer 1

Oil prices directly impact Mr. Spacek’s business costs by affecting the transportation costs of exporting stationery. As oil prices rise, it becomes more expensive to ship goods, impacting the business’s bottom line.

Step-by-step explanation:

Changes in oil prices affect Mr. Spacek’s stationery supply business primarily through transportation costs. When oil prices increase, the cost to export goods, including stationery to Latin America, also increases, making it more expensive to conduct business. This scenario illustrates an example of how oil prices can directly impact the operational costs of a business that relies on transportation for exporting goods.

Consider a similar example, such as a messenger company that relies on gasoline for delivery services. If the price of gasoline falls, this reduces the company's main costs, enabling cheaper service provision, higher profits, and the ability to supply more services at any given price. The company may expand its service area with the additional profits due to lower gasoline prices. Conversely, rising oil prices can result in increased costs and reduced profitability.