Analysis of a Small Open Economy: The Case of Energy Prices in Canada

The analysis suggests that land rental price decrease in the long run as a consequence of higher energy prices. Energy demand from agriculture decreases ifland and energy are substitute inputs. The necessary and sufficient conditions for expecting increasing average farm size, decreasing agricultural output, and number offarms also have been provided. The analysis considers a competitive equilibrium environment with specific proviso that land prices adjust in response to higher domestic energy prices. Simple expressions for calculating long-run agricultural responses to higher domestic energy prices were derived and used in estimating such responses for Canadian agriculture. Key words: Canada, energy prices, land revenue function, profit function. Domestic oil prices in Canada are controlled by the government substantially below world prices. However, in 1981 domestic crude oil prices increased faster than world prices. An energy pricing and taxation agreement be-tween the governments of Canada and Albert