In the figure below, Sai is the long-run domestic supply curve of oil without considering the climate change damages resulting from burning more oil, Sa2 is the domestic supply curve that includes these per-unit damages. Imported foreign oil is reflected by three supply curves: Pwi reflects the observed world price, Pw2 includes a "vulnerability premium" due to national security in addition to world price, and Pw3 adds in the per-unit climate change damage due to consuming more imported oil. $/Unit Domestic Demand Pw2 Pw1 A B C D Consumption 1) In an efficient allocation when the national security and climate change considerations are incorporated, identify the amount of oil produced domestically and the amount of oil (or market demand) imported from the rest of the world.
In the figure below, Sai is the long-run domestic supply curve of oil without considering the climate change damages resulting from burning more oil, Sa2 is the domestic supply curve that includes these per-unit damages. Imported foreign oil is reflected by three supply curves: Pwi reflects the observed world price, Pw2 includes a "vulnerability premium" due to national security in addition to world price, and Pw3 adds in the per-unit climate change damage due to consuming more imported oil. $/Unit Domestic Demand Pw2 Pw1 A B C D Consumption 1) In an efficient allocation when the national security and climate change considerations are incorporated, identify the amount of oil produced domestically and the amount of oil (or market demand) imported from the rest of the world.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Please answer number 1
Transcribed Image Text:In the figure below, Sai is the long-run domestic supply curve of oil without considering the
climate change damages resulting from burning more oil, Sa2 is the domestic supply curve
that includes these per-unit damages. Imported foreign oil is reflected by three supply curves:
Pwl reflects the observed world price, Pw2 includes a “vulnerability premium" due to national
security in addition to world price, and Pw3 adds in the per-unit climate change damage due to
consuming more imported oil.
$/Unit
Domestic Demand
Sa2
w3
w2
w1
D
Consumption
А В
1) In an efficient allocation when the national security and climate change
considerations are incorporated, identify the amount of oil produced domestically
and the amount of oil (or market demand) imported from the rest of the world.
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