Reduced Investment Shifts Supply Left, Raising Oil Prices

Steps:

• Reduced investment in exploration limits new oil reserves, decreasing long-run supply.
• This shifts the supply curve leftward, as less oil becomes available at every price.
• Demand for oil remains unchanged, so the new equilibrium occurs at a higher price and lower quantity.
• Thus, the policy causes a supply decrease, leading to price increases.

Why C is correct:

• Law of supply and demand: a leftward supply shift, with demand fixed, raises equilibrium price.

Why the others are wrong:

• A: Upward movement along supply curve reflects higher demand or price, not a supply reduction.
• B: Downward movement along demand curve indicates falling demand, which lowers price, but demand is unaffected here.
• D: Leftward supply shift increases price, not decreases it.

Final answer: C