Suppose that war in the Middle East reduces the supply of oil, forcing a country to economize on oil. How would a central planner optimize the economic problem in this situation?
decrease supply for oil in all production processes
supply oil for uses for which good substitutes for oil exist
increase demand for oil in all production processes
shift oil out of uses for which good substitutes for oil exist
In the scenario where a central planner is faced with a reduction in the supply of oil due to war in the Middle East, the goal would be to optimize the allocation of the limited oil resources to minimize the negative impact on the economy.
The most effective strategy would be to supply oil for uses for which good substitutes for oil exist. This approach allows the central planner to prioritize the allocation of oil to sectors or processes where alternatives can be used, thereby conserving oil for essential uses where no substitutes are available.
By doing this, the central planner can ensure that critical sectors of the economy continue to function while reducing overall oil consumption. This strategy helps to mitigate the economic impact of the oil supply shock and promotes a more efficient use of the available resources.
In summary, the optimal response would be to supply oil for uses for which good substitutes for oil exist.