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Assignment 1- ecodraft.docx

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York University
ECON 1000

Economics Assignment Tracy Chen Student number: 210019644 Rahul Raina Question 1 a) On the basis of the graph, foreign oil was cheaper to produce than US oil. b) If there had been no import quota, the US price would have been $1.75 dollars per barrel and the US would have imported 2.1 billion of barrels per year. c) With an oil import quota of 1 billion barrels per year, the US price would be $3 dollars per barrel of oil. d) The annual loss to US consumers based on the oil import quota is 1.25 * 5.5 = 6.875 – (0.375) = 6.5 billion dollars. e) The percentage reduction in total quantity supplied is 16.66%. The Equilibrium price is found by holding Qs constant: 17+0.25P=19-0.25P = $4 dollars per barrel To calculate the quantity supplied: Qs= 17+ 0.25 (4) Qs= 18 barrels per year After curtailment Qs= 14+ 0.25(4) Qs= 15 barrels per year The percentage of reduction in total quantity supplied is: (15-18)/18= 0.1667 Therefore the percentage reduction is 16.67% f) Before curtailment, the price was $4 US per barrel of oil. 19-0.25P=17+0.25P 2=0.5P P=4 After curtailment, the price is $10 US per barrel of oil. 14+0.25P=19-0.25P 0.5P=5 P= 10 g) Before curtailment, the quantity of crude oil demanded and supplied was 18 billion barrels of oil. Qs=17+0.25(4) = 18 billion barrels of oil. After curtailment, the quantity of crude demanded and supplied was 16.5 billion barrels of oil. Qs= 14+ 0.25 (10) = 16.5 billion barrels of oil. h) The price elasticity of demand is less in the short-run. To calculate the point elasticity at the price at $10: (10/16.5)/0.25= 0.1515 Therefore, the price elasticity of demand in the short-run is less than the price elasticity of demand for crude oil as the short-run elasticity is 0.1515 and the long-run elasticity of demand for crude oil is 0.4. g) In a long run, you would expect that the OPEC’s output to have less of an effect on the price of crude oil than in the short run because in the long run, the increase in the price of fuel will result in consumers switching to fuel efficient vehicles and modifying lifestyles to reduce the consumption of fuel. Question 2 a) BAC- ATC curves 90000 80000 70000 60000 Plant-Capital 3 50000 Plant Capital 4 ATC / Plant Capital 5 Ve40000 Plant Capital 6 30000 20000 10000 0 0 50 100 Number of vehicles 250 300 350 b) They are evident in the graph c) i) 150 If the demand is expected to be
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