Reference no: EM13127087
1. Suppose that the long-run world demand and supply elasticities of crude oil are -0.906 and 0.515, respectively. Suppose further that the current long-run equilibrium price is $30 per barrel and the equilibrium quantity is 16.88 billion barrels per year.
a.Derive the (linear) long-run demand and supply equations.
b.Suppose the long-run supply curve you derived above consists of competitive supply plus the quantity of OPEC supply. If the long-run competitive supply (not including OPEC's production) is:
QS = .818 + 0.29p,
what must be OPEC's level of production in this long-run equilibrium to maintain the price of $30?
2. Suppose a market is supplied by domestic producers and an international supply. The domestic (inverse) supply curve is given by the p = 5 + 2Q, and the foreign supply curve is given by p = 15.
a. Draw on a graph the total supply curve (please label clearly).
b. On a second graph, draw the total supply curve if the government imposes a quota of 10 on foreign supply.3. A recent newspaper article points out that the price of economics textbooks is up 15 percent this year over last year, and yet the number of textbooks sold is higher this year. This article claims that these figures show that the law of demand does not apply to textbook. Is there a flaw in this argument? Explain your answer and illustrate with a graph. Assume that a textbook is not a Giffen good.
4. Suppose that the inverse demand function for movies is p = 120 - Q1 for college students and p = 120 - 2Q2 for other town residents.
a.What is the town's total demand function (Q = Q1 + Q2) as a function of price, p?
b.Use a diagram to illustrate your answer.
5. Suppose the market for corn is given by the following equations for supply and demand:
QS = 2p - 2
QD = 13 - p
where Q is the quantity in millions of bushels per year and p is the price.
a. Calculate the equilibrium price and quantity. Sketch the supply and demand curves on a graph indicating the equilibrium.
b. If a price floor is imposed at $7 per bushel, will there be a surplus or a shortage? What is the quantity of excess supply or demand that results? Draw a graph to show this.
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