[This problem combines exercise 2 from chapter 5 in the textbook with exercise 3 from chapter 7] A country imports 3 billion barrels of crude oil per year and domestically produces another 3 billion barrels of crude oil per year. The world price of crude oil is $90 per barrel. Assuming linear demand curves, economists estimate the price elasticity of domestic demand to be 0.1 and the price elasticity of supply to be 0.25.

a. [1 point] Consider the changes in social surplus that would result from imposition of a $30 per barrel import fee on crude oil that would involve annual administrative costs of $250 million. Assume that the oil price would not change as a result of the country imposing the import fee, but that the domestic price will increase by $30 per barrel. Also assume that only producers, consumers, and taxpayers within the country have standing. Determine the quantity consumed, the quantity produced domestically, and the quantity imported after the imposition of the import fee. Then estimate the annual social benefits of the import fee.

b. [0.50 point] Assume that prior to the imposition of the import fee, the country annually consumed 900 million short tons of coal, all domestically mined, at a price of $66 per short ton. Qualitatively (i.e., you dont need to calculate a number), how would the CBA of the import fee change if, after imposition of the import fee, annual consumption of coal rises by 40 million short tons, but the price of coal remains unchanged.

c. [1 point] Suppose that in addition to increasing coal consumption by 40 million short tons, the price of coal were to rise to $69 per short ton. Assuming the demand schedule for coal is completely inelastic, calculate the change in the net benefits from the import fee.

d. [1 point] Suppose that, under the same circumstances as in part b., the market price of coal underestimates its marginal social cost by $7 per short ton because the coal mined in the country has a high sulphur content that produces smog when burned. By how much would social surplus change in this case? In answering this question, assume that the annual consumption of coal rises by 40 million short tons, but the price of coal remains unchanged.