Critical Reasoning

The oil wells of Borlandia produced so much oil that the market was overwhelmed; consumption did not keep pace with production. As a result, oil prices fell. The government of Borlandia attempted to support oil prices through a subsidy scheme: oil producers who voluntarily limited the amount of oil they produced were compensated directly by the government up to a specified maximum payment.

The program instituted by the government of Borlandia, if successful, will not be a net cost to the government. Which of the following, if true, is the best basis for an explanation of how this could be true?

A Depressed oil prices meant operating losses for oil producers, decreasing the income of oil producers, and thus decreasing the taxes paid to the government by oil producers.

B Oil production in countries other than Borlandia declined in the same year that Borlandia's government instituted the compensatory scheme.

C In the first quarter after Borlandia's government instituted the compensatory scheme, oil production declined 8 percent.

D Because the government specified a maximum subsidy payment per oil producer, those producers with numerous wells in production received less support per well than those producers with fewer wells in production.

E Oil producers desiring to qualify for the compensatory scheme could not continue to produce oil and simply withhold it from the market.


OA A

Source: Princeton Review