● Problem 8

A.
- On graph paper, draw the supply and demand curves for the United States.
B.
- With free trade in oil, what price will Americans pay for their oil? = 70$
- What quantity will Americans buy? 15 million barrel / day
- How much of this will be supplied by American producers? 6 million barrel / day
- How much will be imported? 15-6 = 9 million barrel / day
- Illustrate total imports on your graph of the U.S. oil market? On the graph
C.
- Suppose the United States imposes a tax of $4 per barrel on imported oil.
- What quantity would Americans buy? = 13 million barrel / day
- How much of this would be supplied by American producers? 10 million barrel / day
- How much would be imported? 13-10 = 3 million barrel / day
- How much tax would the government collect? = 4*3 = 12 million $ / day.
D.
- Briefly summarize the impact of an oil import tax by explaining who is helped and who is hurt among the
following groups:
- domestic oil consumers, the oil consumption will be decreasing from 15 million barrel to 13 million
barrel / day
- domestic oil producers, local production and supply will increase from 6 million barrel to 10 million
barrel / day
- foreign oil producers, importing oil from foreigner companies will decrease from 9 million barrel to 3
million barrel / day
- and the U.S. government. The revenue of gov we increase from zero to 12 million $/day

● Problem 10: Use the following diagram to calculate total consumer surplus at a price of $8 and
production of 6 million meals per day. For the same equilibrium, calculate total producer surplus.
Assuming price remained at $8 but production was cut to 3 million meals per day, calculate producer
surplus and consumer surplus. Calculate the deadweight loss from underproduction.
A

- calculate total consumer surplus at a price of $8 and production of 6 million meals per day

as the following graph the consumer surplus at price of 8$ = 1/2 * ( Base*Hight) = 1/2 * (6*6) = 36/2 = 18

- calculate total producer surplus

the following graph the producer surplus at same equilibrium

= 1/2 * ( Base*Hight) = 1/2 * (6*6)= ½ * 36 = 18

Assuming price remained at $8 but production was cut to 3 million meals per day, calculate producer surplus and
consumer surplus. Calculate the deadweight loss from underproduction.

As following graph:

New Consumer surplus= (1/2 *9) +(3*3) = 4.5+9= 13.5

New Producer surplus = (1/2 *9) +3*3=4.5+9= 13.5
Deadweight loss from underproduction = 27-36 = -10

● Problem 15 On April 20, 2010, an oil-drilling platform owned by British Petroleum exploded in the Gulf of Mexico,
causing oil to leak into the gulf at estimates of 1.5 to 2.5 million gallons per day for well over two months. Due to the oil
spill, the government closed over 25 percent of federal waters, which has devastated the commercial fishing industry in the
area.
- Explain how the reduction in supply from the reduced fishing waters will either increase or decrease consumer
surplus and producer surplus, ? Decreasing in both consumers and producer surplus

- show these changes graphically.? Attachment

● Problem 17 The following graph represents the market for wheat. The equilibrium price is $20 per
bushel and the equilibrium quantity is 14 million bushels.

a. Explain what will happen if the government establishes a price ceiling of $10 per bushel of wheat in this market? What
if the price ceiling was set at $30?
- At 10 $ price the demand will increased to 20 bushels . and suppliers will supply only 4 bushels(a shortage in supply).
- At 30 $ the demand will decreased to 8 bushels and the supplies can supply 24 bushels (oversupply of bushels)

b. Explain what will happen if the government establishes a price floor of $30 per bushel of wheat in this market.What if the
price floor was set at $10?
- THE PRICE FLOOR OF 30 $ MEANS THAT which ANY exchange THAT’S below is not per.
- Demand will decrease to 8 and supp;ies will increase to 24 , on the other hand at floor 10$ the demand will increase
to 20 and supplies will decrease to 4 .