Question

According to the Department of Energy in 2008 the amount of oil imported into the United States reached 52% of the oil consumed in the country. That was about 9.7 million barrels a day of its daily oil needs. Given the rise in the price of oil in 2008 and using the circular flow model we can conclude that the

Answer 1

We can conclude that income will fall for both households and firms, because they will now have to spend more on oil-derived products like gasoline or diesel, or even oil itsef if they are a manufacturer.

However, this will raise the income of the firms that sell oil, since the price elasticity of demand of gasoline is relatively inelastic, and a price increase does not result in a immediate similar decrease in demand (in other words, demand falls less than the price rises).