In 2016, the US imported 2.7 billion barrels of oil. The domestic demand and supply for oil are
Demand: P=394-60Q_(d)
Supply: P=1.6+12Q_(s)
a. Without trade, how much will be produced and consumed and at what price? Use a graph.
b. With free trade at $40 per barrel, how much oil does the US produce domestically? How much does it consume? What is the import amount? Use a graph.
c. Compared to autarky (no trade), in free trade, which group (producer or consumer) will gain and which group (producer or consumer) will lose? Use a graph to clearly indicate the change in the wellbeing in terms of consumer surplus, producer surplus, and social gain.
d. Now, hypothetically, because of positive taste change toward electric cars, the demand for the traditional cars using gasoline decreases. The new demand function is P=294-60Q_(d) while the supply function remains the same. With free trade (the scenario in b with the world price at $40 ), domestically, how much will be produced and how much will be consumed? What is the amount of import?
e. After the scenario d, the conflicts in oil producing regions erupted and pushed up the world price, hypothetically, from $40 per barrel to $45 per barrel, now what is the import in the US, given the domestic demand and supply functions in d ?
f. Further conflicts push up the international price of oil to $60 per barrel, at this price, what are the domestic production and the domestic consumption?
g. Conflicts and drastic changes in world oil price eventually make the government decide to have an autarky market on oil (no exports or no imports of oil). Given the demand function and supply function in d, what are the domestic price and quantity produced in equilibrium in the autarky?
h. Compare the result in g with the result in d. What is the deadweight loss of welfare in the economy? Illustrate the loss area with a graph. Calculate the value of deadweight loss.
9. In 2016, the US imported 2.7 billion barrels of oil. The domestic demand and supply for oil are Demand: P=394-60Q Supply:P=1.6+12Q a. Without trade. how much will be produced and consumed and at what price? Use a graph. b.With free trade at $40 per barrel,how much oil does the US produce domestically? How much does it consume? What is the import amount? Use a graph. c. Compared to autarky (no trade), in free trade, which group (producer or consumer) will gain and which group (producer or consumer) will lose? Use a graph to clearly indicate the change in the wellbeing in terms of consumer surplus, producer surplus, and social gain d. Now, hypothetically, because of positive taste change toward electric cars, the demand for the traditional cars using gasoline decreases. The new demand function is P=294-60Q while the supply function remains the same. With free trade (the scenario in b with the world price at $40), domestically, how much will be produced and how much will be consumed? What is the amount of import? e. After the scenario d, the conflicts in oil producing regions erupted and pushed up the world price. hypothetically, from $40 per barrel to $45 per barrel, now what is the import in the US, given the domestic demand and supply functions in d? f. Further conflicts push up the international price of oil to $60 per barrel, at this price, what are the domestic production and the domestic consumption? g. Conflicts and drastic changes in world oil price eventually make the government decide to have an
Given the demand function and supply function in d. what are the domestic price and quantity produced in equilibrium in the autarky? h. Compare the result in g with the result in d. What is the deadweight loss of welfare in the economy? Illustrate the loss area with a graph. Calculate the value of deadweight loss.
