Question

When oil prices fall, what happens to supply of plastics?

A. Supply shifts to the left as price of inputs decreases.
B. Supply shifts left as more drivers demand gasoline.
C. Supply shifts as the number of suppliers of plastic declines.
D. Supply shifts to the right as price of inputs increases.
E. Supply shifts as consumers demand more plastic products.

Answer 1

When oil prices fall, the supply of plastics shifts to the right due to the decrease in the cost of production for plastic products. The correct answer is option A.

Step-by-step explanation:

When oil prices fall, the supply of plastics is likely to shift to the right because the price of inputs, which includes oil, decreases. Since oil is a primary component in the production of plastic, cheaper oil means that the cost of producing plastic goes down. This reduction in production costs allows manufacturers to supply more plastic at each price level, hence increasing supply.

Lower oil prices do not directly prompt more drivers to demand gasoline, affect the number of suppliers of plastic, or increase consumer demand for plastic products in the way that changing their preferences or incomes would. Therefore, answers B, C, and E are not directly related to the change in oil prices. Also, answer D suggests an increase in input costs, which contradicts the scenario presented.