If a lower price of crude oil leads to lower oil revenue for oil-producing countries, this suggests that the world demand for oil is _____?
Question: If a lower price of crude oil leads to lower oil revenue for oil-producing countries, this suggests that the world demand for oil is _____?
If a lower price of crude oil leads to lower oil revenue for oil-producing countries, this suggests that the world demand for oil is **inelastic**.
Elasticity of demand measures how responsive the quantity demanded of a good is to changes in its price. When the demand for a product is inelastic, it means that a change in price (in this case, a decrease in the price of crude oil) does not result in a proportionally larger change in quantity demanded. As a result, when oil prices drop, the total revenue from oil sales decreases because the percentage decrease in quantity demanded is not enough to offset the percentage decrease in price.
In the context of oil-producing countries, a significant drop in oil prices can lead to reduced revenue even though the price has decreased because the decrease in demand is not sufficient to make up for the loss in price. This suggests that the world's demand for oil is relatively inelastic, meaning that consumers are not drastically reducing their consumption of oil in response to lower prices.
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