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Assume that the domestic supply curve for crude oil is S(P) = 5P and the domestic demand curve for crude oil is D(P) = 500 - 20P.

7. Assume that the domestic supply curve for crude oil is S(P) = 5P and the domestic demand curve for crude oil is
D(P) = 500 - 20P. Further assume that domestic oil refiners face a perfectly elastic supply of oil imports at a price
of 16.
a) Derive the domestic price, the quantity processed by domestic oil refiners, and the amount of imports at the
competitive equilibrium. Now suppose that domestic crude oil suppliers face a price ceiling of 8. Further
suppose that for each two units of crude oil purchased, a domestic oil refiner gets one entitlement to domestic
crude oil.
b) Derive the marginal price of crude oil faced by domestic oil refiners.
c) Derive the effect of regulation on the amount of crude oil processed by domestic oil refiners and the amount
of imports.
d) Derive the welfare effect of regulation on U.S. consumers and producers.
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Economics-8086469.doc

domestic supply curve for crude oil is S(P) = 5P and the domestic demand curve for crude oil is
D(P) = 500 - 20P. Further assume that domestic oil refiners face a perfectly elastic supply of oil...

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