Table 6.1
-Table 6.1 indicates the demand and supply schedules for oil in the United States.Suppose also that the world price of oil is $75 per barrel and that the United States can buy all the oil it wants at that price.Which of the following statements is TRUE about the impact of a law banning all oil imports?

Question

Quizplus · Accepted Answer

If a law bans all oil imports, the United States will have to rely solely on domestic producers to meet its demand for oil. As a result, the domestic producers will have a captive market, enabling them to raise prices and sell more oil than they would under free trade. This would lead to an increase in producer surplus, but at the expense of consumer surplus, which would decrease due to the higher prices. However, the total surplus in the oil market would not necessarily rise, as there would be a deadweight loss due to the inefficiency of producing oil domestically when it could be imported more cheaply.

Table 6.1 -Table 6.1 Indicates the Demand and Supply Schedules for Oil