PROBLEM #7 [6 points]: Suppose that the world market for oil is very large. Further suppose that Canada is a small producer in the world market for oil and that the world market is perfectly competitive. Notice that S and Do are the Canadian domestic supply and domestic demand, respectively. Let PW be the world market's equilibrium price for oil. Suppose that Canadian producers can produce up to X1 units at or below the world price, PW, and that beyond X1 units the Canadian producers can only supply oil at a price that is higher than PW. Also, assume that at PW the demand for oil in the Canadian market is X2, where X2 > X1. For the purposes of your analysis, assume the original conditions in Canada are that there exists a ban on imports of good X and then the ban is lifted in favour of free trade. P SO A E C G H PW Q1 Oil a) Given the diagram above, complete the welfare analysis by filling out the table below. [3 points] Complete Trade Ban Free Trade Welfare Change Consumer Surplus Producer Surplus Total Welfare b) Discuss the effects on Canadian oil producers when the world price of oil increases, ceteris paribus. [2 points]