1. In 2012, the United States imported about 3.1 billion barrels of oil. Perhaps it would be better for the United States if it could end the billions of dollars of payments to foreigners by not...

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1. In 2012, the United States imported about 3.1 billion barrels of oil. Perhaps it would

be better for the United States if it could end the billions of dollars of payments to

foreigners by not importing this oil. After all, the United States can produce its own

oil (or other energy products that substitute for oil). If the United States stopped all

oil imports suddenly, it would be very disruptive. But perhaps the United States could

gain if it gradually restricted and then ended oil imports in an orderly transition. If we

allow time for adjustments by U.S. consumers and producers of oil, and we perhaps

are optimistic about how much adjustment is possible, then the following two equations show domestic demand and supply conditions in the United States:

Demand: P 5 364 2 48·Q D

Supply: P 5 4 1 40·Q S

where quantity Q is in billions of barrels per year and price P is in dollars per barrel.

a. With free trade and an international price of $100 per barrel, how much oil does

the United States produce domestically? How much does it consume? Show the

demand and supply curves on a graph and label these points. Indicate on the graph

the quantity of U.S. imports of oil.

b. If the United States stopped all imports of oil (in a way that allowed enough time for

orderly adjustments as shown by the equations), how much oil would be produced

in the United States? How much would be consumed? What would be the price of

oil in the United States with no oil imports? Show all of this on your graph.

c . If the United States stopped all oil imports, which group(s) in the United States would

gain? Which group(s) would lose? As appropriate, refer to your graph in your answer.

2. Country I has the usual demand and supply curves for Murky Way candy bars. Country II

has a typical demand curve, too, but it cannot produce Murky Way candy bars.

a. Use supply and demand curves for the domestic markets and for the international

market. Show in a set of graphs the free-trade equilibrium for Murky Way candy

bars. Indicate the equilibrium world price. How does this world price compare to

the no-trade price in Country I? Indicate how many Murky Ways are traded during

each time period with free international trade.

b. Show graphically and explain the effects of the shift from no trade to free trade on

surpluses in each country. Indicate the net national gain or loss from free trade for

each country.

Answered 3 days AfterJun 10, 2022

Answer To: 1. In 2012, the United States imported about 3.1 billion barrels of oil. Perhaps it would be better...

Komalavalli answered on Jun 14 2022
17 Votes
1.
a. Demand equation:
P = 364 – 48QD
Supply equation:
P = 4+40QS
With price P = 100
Demand fo
r domestic can be found by substituting P = 100 in demand equation
P = 364 – 48Q
100 = 364 – 48Q
48Q = 264
Q = 264/48
Q = 5.5
Domestic demand is 5.5 whereas domestic supply of oil ba
els at this price is P = 4+40QS
100 = 4+40Q
40Q = 96
Q = 2.4
Domestic supply of oil ba
els is 2
Shortage of oil supply is 3 ba
els so US will import 3 ba
els of oil at price $100 and it will consume 2 ba
els of oil in the domestic market.
)
At equili
ium demand equals supply
364 – 48Q= P = 4+40Q
88Q = 360
Q = 360/88
Q = 4.09
Substituting Q = 4 in demand equation we get equili
ium price
P = 364 – 48*4
P = 364-192
P =$ 172
When US stop importing oil from other nation their equili
ium price will be $172...
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