Suppose that Country X is a high-cost producer of oil and Country Y is a low-cost producer of oil. The citizens of Country X use both oil produced in their own country as well as oil produced in Country Y. If the market price of oil decreases, oil production in Country X will , and the citizens of Country X will .

If the market price of oil decreases, oil production in Country X will decrease, and the citizens of Country X will import a larger fraction of oil from Country Y.

Explanation:

Price is factor that causes a movement along the supply curve. When price of a product rises, there is an upward movement along the supply curve, leading to a higher quantity supplied. On the other hand, when price falls, there is a downward movement along the demand curve causing a decrease in quantity supplied.

As mentioned in the question, Country X has a higher cost of production of oil than Y. When oil prices fall, it means that suppliers are discouraged as their sales revenue and profits will also fall. Thus they reduce quantity supplied. This in turn means that there is lesser production of oil in the economy and more would have to be imported from Country Y in order to satisfy the market demand.

answer; foreign exchange transaction;

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