Answer question 4

EC0211 Prof. Augustine Nelson Problem Set # 4 (1) US oil demand and supply can be represented by the following demand and supply model in million barrels per day: Demand: Qd = 25 i 0.05P Supply: Qs = 13 + 0.10P ANS: Find the average price and quantity of oil demanded in the market? (2) The US government imposes sanctions on Russian oil imports into the US. This reduces US oil supply by 3 million barrels per day. Find the new average price and quantity of oil consumed in the US per day. (3) Graph the demand and supply curves from questions (1) and (2), then compute the consumer surplus before and after the oil sanctions. a. Calculate the consumer surplus before the sanctions were imposed in question 1. b. Calculate the consumer surplus after the sanctions were imposed in question 2. ANS: (4) Supposed the Federal Government imposed a per unit tax of $3 per barrel on US oil consumption to reduce energy consumption, rather than imposing the sanctions. Use the demand and supply equations from question (1) to calculate the following: a. Price the buyers pay b. Price the sellers receive c. The quantity consumed with the tax d. Plot the resulting tax diagram e. Calculate the Dead Weight Loss f. Calculate the amount of government tax revenue Ans