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I am unsure how to set up the equations for each portion of this problem Problem 2 2 Analytical Section I - There Shall be

I am unsure how to set up the equations for each portion of this problem

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Problem 2 2 Analytical Section I - There Shall be Oil (20P) Imagine, you have been appointed an advisor to a presidential campaign. Being an interested public policy researcher, you want to know what will happen to oil price during the course of the pandemic. The demand for oil can be described by the following demand function Q" = 1000 - P + I - 200S, whereby Q" is the quantity of oil demanded, P is the price, I is overall national income, and S is the effect of the pandemic on consumer confidence. The supply of oil is given by the following supply function QS = P + 2S, whereby P is the price. 2.1 Equilibrium in Oil Markets (5P) Sketch the demand and supply curve graphically, and calculate the equilibrium price and equilibrium quantities when there is no pandemic and S is set to 0 (i.e. S =0) and the income equals 100 (i.e. I = 100). 2.2 The Price Elasticity of Demand (5P) Calculate the price elasticity of demand and supply, respectively and interpret your results briefly. Explain verbally how a 1% increase in the price impacts the demand for and supply of oil. 2.3 Covid-19 and the Shutdown (5P) As result of the pandemic, economists in the campaign team expect demand to drop dramatically and corresponding increase in the supply. S increases from S = 0 to S = 5. Please calculate and explain what will happen to the price of oil? Show your results also graphically? (Hint: You can draw the effects of this shift also into your illustration in 2.1!) 2.4 Fixing the Price vs. Fixing the Problem (5P) One of your colleagues is suggesting to fix the price of oil at $50 (i.e. P = 50, this is a price ceiling!). Explain briefly how this proposed would affect supply of aqnd demand for oil. Is this intervention effective in achieving the goal of saving the national oil industry? Can you think of any policy alternatives of how the price of oil could be stabilized? (Hint: For deriving your results, please use your results from 2.3!)

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