The United States has put a ban on the export of oil since four decades ago,...

The United States has put a ban on the export of oil since four decades ago, which means that US oil producers are not allowed to sell their products in the international market.

a) Using a supply and demand diagram, show the effect of the ban on the export of oil, on consumers, producers, and total surplus in the domestic market for the US oil. [Suggestion: Use a table for your welfare analysis to make the comparison easier].

b) Is there a DWL associated with this policy? If yes, determine the DWL of this policy on your diagram. Carefully and thoroughly explain what the source of this DWL is.

c) What is the relationship between the elasticity of demand for oil and the DWL you determined in part (b)? Carefully explain your answer and the reasoning behind it.

d) Currently the government is contemplating lifting the ban on the export of oil. Does lifting the ban have a similar effect on consumers and producers of US oil in the domestic market? Explain. You can refer to the result of your analysis in part (a) to motivate your answer.

Expert Solution

Rahul Sunny answered 2 years ago

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