The daily demand for crude oil in the United Kingdom is D(P) = 2, 000 10 P, where P is the price of a barrel (in dollars). The UK is a small fraction of the total market for crude oil, so it can purchase as much crude oil as it wishes at the world price of $50. However, since producers can sell crude oil in other countries for that price, no producer would accept to sell in the UK for less than $50.

(a) Draw the supply curve of crude oil in the UK. Is this supply curve elastic or inelastic?

(b) What is the equilibrium price and quantity?

(c) The UK is considering adopting a tax of $10 per barrel of crude oil. Calculate the new equilibrium price and quantity after this tax.

(d) How much of the tax burden would fall on the demand side and how much would fall on the supply side? Justify.