Reference no: EM131021390
Fracking, or hydraulic fracturing, has been used more frequently in recent years to drill for oil and natural gas that previously was too expensive to obtain. According to an article in the New York Times, "horizontal drilling has enabled engineers to inject millions of gallons of high-pressure water directly into layers of shale to create the fractures that release the gas. Chemicals added to the water dissolve minerals, kill bacteria that might plug up the well, and insert sand to prop open the fractures." Experts are divided about whether fracking results in significant pollution, but some people worry that chemicals used in fracking might lead to pollution of underground supplies of water used by households and farms.
a. First, assume that fracking causes no significant pollution. Use a demand and supply graph to show the effect of fracking on the market for natural gas.
b. Now assume that fracking does result in pollution. On your graph from part (a), show the effect of fracking. Be sure to carefully label all curves and all equilibrium points.
c. In your graph in part (b), what has happened to the efficient level of output and the efficient price in the market for natural gas compared with the situation before fracking? Can you be certain that the efficient level of output and the efficient price have risen or fallen as a result of fracking? Briefly explain. Source: Susan L. Brantley and Anna Meyendorff, "The Facts on Fracking," New York Times, March 13, 2013.
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