The Strait of Hormuz and the Global Oil Market

Answer the following questions to check your understanding of the story.

What happens to consumer surplus in the global oil market if the Strait of Hormuz closes?

a) Consumer surplus increases.

b) Consumer surplus remains unchanged.

c) The effect on consumer surplus is uncertain.

d) Consumer surplus decreases.

Would closing the Strait of Hormuz create an economic cost for society?

a) Yes. Deadweight loss occurs because some mutually benefit trades don’t happen and oil exporters face higher costs.

b) Yes. Deadweight loss occurs because a higher price transfers some surplus from consumers to producers

c) No. It increases the revenue earned by producers.

d) No. It moves the equilibrium in the global oil market from one efficient outcome to another.

What happens to producer surplus in the global oil market if the Strait of Hormuz closes?

a) Producer surplus remains unchanged.

b) The effect on producer surplus is uncertain.

c) Producer surplus increases.

d) Producer surplus decreases.

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