The government of Islandia, a small island nation, imports heating oil at a pric

Question

The government of Islandia, a small island nation, imports heating oil at a price of $2 per gallon and makes it available to citizens at a price of $1 per gallon. Islandians' demand curve for heating oil is given by: P 6-Q where P is the price per gallon in dollars and Q is the quantity in millions of gallons per year. Each of the 1 million Islandian households has the same demand curve for heating oil as shown in the diagram below. Demand for heating oil in Islandia a. Quantity (millions of gallonslyear)

Explanation / Answer

The government must pay $ 5 million per year to import enough oil to to be available for the nation.

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