Question

In the context of the supply and demand equations for crude oil in the United States in the​ mid-1980s (​= 2 ​ ​(1/2)p ​= 15​(1/4)p, where price is given in dollars and quantity in millions of barrels per day), and given a domestic equilibrium price of​ $22.67 per barrel with 9.3 million barrels traded per day, if the world price falls below this equilibrium​ price, resulting in a domestic shortage, how can the shortage be addressed through the purchase of crude oil from foreign suppliers? Furthermore, what is the quantity of imports when the world price is ​$.00 per barrel?

Answer 1

To address a domestic shortage caused by the world price of crude oil falling below the domestic equilibrium price, the U.S. can import crude oil. The exact quantity of imports cannot be deduced without additional information on the new world price. Historical events like the 1973 OPEC oil embargo illustrate market responses to supply changes.

Step-by-step explanation:

When the world price of crude oil falls below the domestic equilibrium price, resulting in a domestic shortage, the United States can address this shortage through the purchase of crude oil from foreign suppliers. This means importing oil to meet the excess demand at the lower world price. As for the quantity of imports when the world price is $.00 per barrel, we need additional information, like the new world price, to determine this figure, as the original equilibrium equations and the provided historical context are not sufficient to calculate the exact quantity.

Looking at historical events, such as the OPEC oil embargo of 1973, can shed light on the responsiveness of the oil market to price changes and supply shifts. During the OPEC embargo, the U.S. experienced a shift of the supply curve to the left, leading to higher prices and lower quantities of oil consumed. Similar situations may require adjustments in consumption patterns or changes in the elasticity of the demand over time due to conservation efforts and technological improvements.