Suppose that the world price of oil is roughly$90.00 per barrel and that the world demand andtotal world supply of oil equal 34 billion barrels peryear (bb/yr), with a competitive supply of 20 bb/yrand 14 bb/yr from OPEC. Statistical studies haveshown that the long-run price elasticity ofdemand for oil is -0.40, and the long-runcompetitive price elasticity of supply is 0.40.Using this information, derive linear demand andcompetitive supply curves for oil.Let the demand curve be of the general formQ=a-bPand the competitive supply curve be of thegeneral formQ=c+dP,where a, b, c, and d are constants.The equation for the long-run demand curve isA.Q=47.50-0.15P.B.Q=13.50-47.50P.C.Q=47.50-P.D.Q=47.50+0.15P.E.Q=13.50-0.15P.

The long-run equilibrium point for a perfectly competitive market occurs where the demand curve…

Answered: where a, b, c, and d are constants. The…

where a, b, c, and d are constants. The equation for the long-run demand curve is A.Q=47.50-0.15P. B.Q=13.50-47.50P. C.Q=47.50-P. D.Q=47.50+0.15P.

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter5: Elasticity Of Demand And Supply

Section: Chapter Questions

Problem 1.1P: (Calculating Price Elasticity of Demand) Suppose that 50 units of a good are demanded at a price of...

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Question

Suppose that the world price of oil is roughly
$90.00 per barrel and that the world demand and
total world supply of oil equal 34 billion barrels per
year (bb/yr), with a competitive supply of 20 bb/yr
and 14 bb/yr from OPEC. Statistical studies have
shown that the long-run price elasticity of
demand for oil is -0.40, and the long-run
competitive price elasticity of supply is 0.40.
Using this information, derive linear demand and
competitive supply curves for oil.
Let the demand curve be of the general form
Q=a-bP
and the competitive supply curve be of the
general form
Q=c+dP,
where a, b, c, and d are constants.
The equation for the long-run demand curve is
A.Q=47.50-0.15P.
B.Q=13.50-47.50P.
C.Q=47.50-P.
D.Q=47.50+0.15P.
E.Q=13.50-0.15P.

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