Excerpt: A U.S. Treasury Department analysis showed that the SPR releases, along with coordinated releases from international partners, have reduced gasoline prices at the pump by as much as 40 cents per gallon, compared to what they otherwise would have been.

g. Discuss the effects of the increase in supply of oil from the SPR on the (perfectly competitive) market for gasoline in the U.S., assuming that this policy causes the price of gasoline to fall by 40 cents per gallon. Indicate on your graph the equilibrium before and after the sales from the SPR.

h. Using letters on your graph discuss the changes in CS, PS and TS resulting from this policy.

i. Could this policy be seen as a Pareto improvement or not? Carefully explain.

j. On a new graph compare this policy (let's call it "SPR" scenario) with what would have happened if the U.S. government had not sold oil from SPR and instead, had introduced a price ceiling ("ceiling" scenario) which attains exactly the same gasoline price of the SPR scenario. Using letters on your graph discuss the changes in CS, PS and TS when we move from the SPR to the ceiling scenario.

k. Under what circumstances would a per-unit gasoline subsidy not succeed in absorbing the excess demand that would have resulted from a price ceiling? Explain.

l. What could be the risks of adopting the SPR scenario? Intuitively explain.