Chapter 2: Q8 (page 78)
Does a price ceiling change the equilibrium price?
no change in equilibrium price. the eqilibrium shifts to right due to change in demand.
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In Example 2.8 we examined the effect of a 20-percent decline in copper demand on the price of copper, using the linear supply and demand curves developed in Section 2.6. Suppose the long-run price elasticity of copper demand were -0.75 instead of -0.5.
Assuming, as before, that the equilibrium price and quantity are P_ = $3 per pound and Q_ = 18 million metric tons per year, derive the linear demand curve consistent with the smaller elasticity.
Using this demand curve, recalculate the effect of a 55-percent decline in copper demand on the price of copper.
Many changes are affecting the market for oil. Predict how each of the following events will affect the equilibrium
price and quantity in the market for oil. In each case, state how the event will affect the supply and demand diagram.
Create a sketch of the diagram if necessary.
a. Cars are becoming more fuel efficient, and therefore get more miles to the gallon.
b. The winter is exceptionally cold.
c. A major discovery of new oil is made off the coast of Norway.
d. The economies of some major oil-using nations, like Japan, slow down.
e. A war in the Middle East disrupts oil-pumping schedules.
f. Landlords install additional insulation in buildings.
g. The price of solar energy falls dramatically.
h. Chemical companies invent a new, popular kind of plastic made from oil.
Using the original elasticities of demand and supply (i.e., ES = 1.5 and ED = -0.5), calculate the effect of a 20-percent increase in copper demand on the price of copper.
Now calculate the effect of this increase in demand on the equilibrium quantity, Q*.
As we discussed in Example 2.8, the U.S. production of copper declined between 2000 and 2003. Calculate the effect on the equilibrium price and quantity of both a 20-percent increase in copper demand(as you just did in part a) and of a 20-percent decline in copper supply.
Example 2.9 (page 76) analyzes the world oil market. Using the data given in that example:
a. Show that the short-run demand and competitive supply curves are indeed given by
D = 36.75 - 0.035P
SC= 21.85 + 0.023P
b. Show that the long-run demand and competitive supply curves are indeed given by
D = 45.5 - 0.210P
SC= 16.1 + 0.138P
c. In Example 2.9 we examined the impact on price of a disruption of oil from Saudi Arabia. Suppose that instead of a decline in supply, OPEC production increases by 2 billion barrels per year (bb/yr) because the Saudis open large new oil fields. Calculate the effect of this increase in production on the price of oil in both the short run and the long run.
A vegetable fiber is traded in a competitive world market, and the world price is \(9 per pound. Unlimited quantities are available for import into the United States at this price. The U.S. domestic supply and demand for various price levels are shown as follows:
| PRICE | U.S. SUPPLY (MILLIONS) | U.S. (DEMAND) (MILLIONS) |
| 3 | 2 | 34 |
| 6 | 4 | 28 |
| 9 | 6 | 22 |
| 12 | 8 | 16 |
| 15 | 10 | 10 |
| 18 | 12 | 4 |
What is the equation for demand? What is the equation for supply?
At a price of \)9, what is the price elasticity of demand? What is it at a price of \(12?
What is the price elasticity of supply at \)9? At $12?
In a free market, what will be the U.S. price and level of fiber imports?
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