1. In the early 1970s, the U.S. Government had a two-tiered system for crude oil prices. Oil that came from older wells (drilled a few years before) was given an approved price per barrel that was considerably lower than the price allowed for crude oil that came from "new" or more-recently dug oil wells. The idea behind the scheme was to keep gasoline prices low by making the main input into gasoline -- crude oil -- less expensive than would be oil sold to U.S. refineries that came from wells in other countries.One oil executive, Marc Rich, came up with a scheme in which the "old oil" was secretly converted into "new oil" through false bookkeeping entries, which meant that some of the oil Rich sold to refineries had a price attached that was higher than U.S. law permitted at that time. According to the government, these "overcharges" ultimately drove the price of gasoline higher than it would have been otherwise.

However, some economists have argued that Rich's scheme actually resulted in lower gasoline prices for consumers. What would have needed to be the case for that scenario to have occurred? Is it plausible, economically speaking? Explain.

2. The Town of Lookout Mountain, Georgia, had a lot of undeveloped land and became a favorite spot for developers to build subdivisions. In response, the town council voted to restrict building of new houses to lots of one acre or more. Previously, developers had been able to build several houses on an acre.

What effect would this new law have on the price per acre of available land in that municipality?

What effect would this new law have on the price of new houses in that town?

What about the price of existing houses in Lookout Mountain? Explain your answer.