A large portion of US oil production comes from hydraulic fracturing (fracking). Production from fracked wells...

A large portion of US oil production comes from hydraulic fracturing (fracking). Production from fracked wells quickly declines, requiring constant drilling of new wells and installation of associated pipelines to keep production at current high levels. Assume that the Trump Administration carries out the threat to levy steep tariffs on imported steel. Companies that supply pipe to the oil industry for wells and pipelines see steep price increases for steel and have to raise their prices. Fill in the table below and explain the effects on U.S. and global oil markets.

Â	shifts to the right	shifts to the left	stays the same
U.S. demand curve for oil
U.S. supply curve for oil
Rest of world demand for oil
Rest of world supply of oil
Total world demand curve for oil	Â	Â	Â
Total world supply curve for oil
	rise(s)	fall(s)	change(s) little
World oil prices
U.S. oil prices
World oil consumption
U.S. oil consumption
U.S. oil net exports

Explain your answers.

Solutions

Expert Solution

US demand curve for oil stays the same, because the tariff on imported steel has affected the supply not demand of oil.

US supply curve for oil shifts to the left, this is because the tariff on imported steel is like a supply shock as the cost of production of oil from hydraulic fracturing has increased.

Rest of the World demand for oil stays the same.

Rest of the World supply of oil stays the same, as the tariff has increased the cost for US oil industry

Total World demand curve for oil stays the same.

Total World supply curve for oil shifts to the left.

Part 2

World oil prices will rise, as US is a major supplier of oil and reduction in its production will create shortage that raise the price of oil in the world market.

US oil prices will rise due to reduced production.

World oil consumption will decline very little as oil is a necessary good.

US oil consumption will decline very little as oil is a necessary good.

US oil net exports will fall, due to its increased price.

Rahul Sunny answered 1 year ago

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