Example 2.9 (page 54) 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 ? 33.6 ? 0.020P
SC ? 18.05 ? 0.012P.
b. Show that the long-run demand and competitive supply curves are indeed given by
D ? 41.6 ? 0.120P
SC ? 13.3 ? 0.071P.
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 supply of oil in both the short run and the long run.
This question was answered on: Jul 11, 2017
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