In 1973 and again in 1979, the Organization of Petroleum Exporting Countries (OPEC) raised the world price of crude oil and increased their revenue as well. Which of the following is a true statement regarding these OPEC price hikes?
A) Their revenue increased because the demand for oil was income inelastic.
B) Their revenue increased because the demand for oil was price inelastic.
C) Their revenue would have increased regardless of income elasticity or price elasticity because oil is an imported product for most nations.
D) Their revenue only increased because oil was already very expensive.

Question

Quizplus · Accepted Answer

The correct answer is B because the OPEC price hikes resulted in an increase in revenue due to the demand for oil being price inelastic. Price inelasticity means that changes in price have a relatively small impact on the quantity demanded. In the case of oil, people still needed to buy it to fuel their cars and heat their homes regardless of its price, so cutting back on their consumption was not a viable option for most consumers. Therefore, even with higher prices, consumers had to continue buying oil, resulting in increased revenue for OPEC.

In 1973 and Again in 1979, the Organization of Petroleum