Which of the following statements below support how revenues of the relevant firms would change given the following events: Oil well in Eastern Pennsylvania close because of environmental violations reducing the annual revenue to drillers in eastern Pensylvania but a war in the Middle east shuts down oil wells across the entire Middle East and raises the revenue of Non Middle Eastern Producers.
Statements:
- The price elasticity of demand for oil is inelastic so a major decrease in world supply caused by War will cause the price of oil to rise by a greater percentage than the decrease in quantity demanded
- The loss of oil wells in eastern Pennsylvania will also cause the world price of oil to rise but by a smaller percentage than the decrease in quantity sold worldwide.
- The price elasticity of demand for oil is elastic so a major decrease in world supply due to War will cause the price of oil to rise by a greater percentage than the decrease in quantity sold.
- The loss of oil wells in eastern Penn will have almost no effect on world price although the revenue of eastern Penn producers will fall.
Answer choices:
- Only statement 1 is true
- Only statement 4 is true
- Statements 1 and 3 are true
- Statements 1 and 4 are true