Table 1 gives information from the coastal state of Noria. Its firms have no commercially viable oil reserves, but local consumers and transport workers use...
Question 1 Report
Table 1 gives information from the coastal state of Noria. Its firms have no commercially viable oil reserves, but local consumers and transport workers use imported fuel. The government is considering a trade agreement with several global oil-exporting economies.
| Product | Noria's domestic supply | Annual demand |
|---|---|---|
| Crude oil | 0 barrels | 18 million barrels |
| Processed fish | 9 000 tonnes | 6 000 tonnes |
(a) Which one of the following is the most direct economic benefit to Noria of importing crude oil under the agreement?
A lower choice of goods for consumers
B access to a good that domestic firms cannot supply
C higher production costs for all firms
D a fall in the global supply of oil [1]
(b) Explain one possible benefit to Noria's firms from exporting processed fish in exchange for oil. [2]
(c) Analyse how a rise in the world price of crude oil could affect Noria's consumers and firms. [3]
Answer Details
(a) The direct benefit is access to a good that domestic firms cannot supply. [1] Noria has domestic crude-oil supply of zero barrels but annual demand of 18 million barrels, so imports allow consumers and firms to obtain fuel.
(b) Processed-fish exporters can gain sales revenue by selling in foreign markets. [1] This may raise profit or enable firms to expand output and employ more workers. [1]
(c) A higher world crude-oil price raises the price Noria pays for imported oil and raises firms’ fuel costs. [1] Firms may increase their own prices or reduce output because higher costs reduce profit. [1] Consumers may then face higher transport and other prices, reducing their real purchasing power and demand for some goods. [1]
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