Change in the price paid by domestic consumers for oil

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Suppose that oil is sold not he world market at price pw, and is also produced domestically by a competitive industry. Assume that the world price of oil is fixed at pw=$100 per battle. It does not depend on the amount consumed domestically, and that initially, domestic suppliers produce one-half of total domestic consumption of 300 million barrels (so one-half is imported). A per barrel tax of $10 is imposed on domestic oil consumption. Assume the elasticity’s of supply and demand are 1 and -0.5, respectively; give predictions for the changes in domestic production and consumption, and the change in the price paid by domestic consumers for oil.

Reference no: EM13688865

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