Which of the following statements is TRUE?

Question

BlackTom AI · Accepted Answer

First, let’s restate the question and options to ensure clarity on what’s being evaluated.
Question: Which of the following statements is TRUE?
Options:
1) When the price of oil is high, consumers will use oil for both valuable and less valuable uses.
2) When the price of oil is low, consumers will use oil only for its most valuable uses.
3) When the price of oil rises, consumers tend to use oil for uses in which there are few substitutes for it.
4) When the price of oil falls, consumers start to conserve oil and use it only when there are no other options.

Now, let’s evaluate each statement one by one.
Option 1: This statement claims that at high prices, consumers will allocate oil to both highly valuable and less valuable uses. In standard economic reasoning about price signals and opportunity cost, higher prices typically incentivize conservation and substitution away from uses with readily available substitutes or lower value, meaning we would expect some high-value uses but fewer low-value uses if substitutes exist. This option’s blanket claim that oil will be used for both valuable and less valuable uses is overly broad and ignores the substitution incentive at high prices. Therefore, this option is not consistently accurate.
Option 2: This statement says that when oil is cheap, consumers will use oil only for its most valuable uses. That contradicts basic incentives: cheap prices reduce the cost constraint, encouraging broader or less selective usage rather than restricting to the most valuable uses. In fact, cheaper energy tends to expand usage, not limit it to the most valuable uses. Hence this option is false.
Option 3: This statement says that when the price rises, consumers tend to use oil for uses with few substitutes. This aligns with the idea of price-induced conservation and prioritization: if a use has close substitutes or is easily substitutable for another input, higher prices would push consumers toward those substitutes; uses with few substitutes remain viable or essential and thus are maintained. This behavior is consistent with concepts like elasticity of demand and the role of substitutes in allocation under constraint, making this statement true.
Option 4: This statement asserts that when oil falls in price, consumers conserve oil and use it only when there are no options. In reality, lower prices tend to relax conservation, increasing usage or enabling more nonessential or lower-value uses, not reducing usage to only when no options exist. Therefore, this option is incorrect.

In summary, Option 3 best matches standard economic reasoning about how price changes influence the allocation of a resource with varying substitute availability, while the other options contradict expected substitution effects and usage patterns under different price levels.

ECON 201 Quiz 2: Ch 3 on S&D

Which of the following statements is TRUE?

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