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microbook_3e-page44 - market supply is given by: p 2 Q S ....

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7. Suppose that the world price of oil is $16 per barrel, and suppose that the United States can buy all the oil it wants at this price. Suppose also that the demand and supply schedules for oil in the United States are as follows: price ($ per barrel) U.S. quantity demanded U.S. quantity supplied 14 16 4 16 15 6 18 14 8 20 13 10 22 12 12 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? What quantity will Americans buy? How much of this will be supplied by American producers? How much will be imported? Illustrate total imports on your graph of the U.S. oil market. c. Suppose the United States imposes a tax of $4 per barrel on imported oil. What quantity would Americans buy? How much of this would be supplied by American producers? How much would be imported? How much tax would the government collect? Do this too! Suppose that the market demand for hamburgers is given by: p 10 Q D 0 and that the
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Unformatted text preview: market supply is given by: p 2 Q S . , where p is the price of a hamburger. a. What is the equilibrium price of hamburgers? What is the equilibrium quantity of hamburgers supplied and demanded? b. Solve the market demand equation and solve the market supply equation for price. This yields the inverse market demand function and the inverse market supply function. c. Graph the inverse market demand and inverse market supply functions, placing quantity on the horizontal axis and price on the vertical axis. Do they intersect at the point corresponding to the equilibrium price and equilibrium quantity? d. Now suppose that the government imposes an excise tax of $2 per hamburger. What is the new quantity of hamburgers supplied and demanded? Hint: At what quantity is the inverse supply curve $2 higher than the inverse demand curve? e. What is the new effective price that consumers pay per hamburger? What is the new price that producers receive per hamburger? Page 44...
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This note was uploaded on 12/29/2011 for the course ECO 311 taught by Professor Willis during the Fall '10 term at SUNY Stony Brook.

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