Question

In the early 1970s, the U.S. Government had a two-tiered system for crude oil prices. Oil that came from older wells (drilled a few years before) was given an approved price per barrel that was considerably lower than the price allowed for crude oil that came from "new" or more-recently dug oil wells. The idea behind the scheme was to keep gasoline prices low by making the main input into gasoline -- crude oil -- less expensive than would be oil sold to U.S. refineries that came from wells in other countries.

One oil executive, Marc Rich, came up with a scheme in which the "old oil" was secretly converted into "new oil" through false bookkeeping entries, which meant that some of the oil Rich sold to refineries had a price attached that was higher than U.S. law permitted at that time. According to the government, these "overcharges" ultimately drove the price of gasoline higher than it would have been otherwise.

However, some economists have argued that Rich's scheme actually could have resulted in lower gasoline prices for consumers. What would have needed to be the case for that scenario to have occurred? Is it plausible, economically speaking? Explain.

Answer 1

Two - tier system is a type of payroll system in which one group of workers recieves is lower wages and employee benefits than another.

profoundly in two-tier system related to crude oil the oil extracted from the old wells is also considered to be capable to sell with good prices.

The method was widely used in case to reduce the oil prices and frequent fluctuations in the price of oil.as the margin was is so high where as when oil from the old oil wells or deposits were used the margin was comparitively lower which was a benefit .

But the oil extracted from the old wells were not as efficent as the oil extracted from the new wells or recently dug wells (digging wells is not so affordable it is very expensive and can be afforded only by rich firms).

The oil extraction is very long process and is also expensive and when the oil from the old well is rejected or disliked by the consumers or suppliers the cost of extraction is totaly wasted

thus being cheaper it can prove to be a great loss.

on the issues certain economist turned it down.