# Supply and Demand and United States

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CHAPTER 2
THE BASICS OF SUPPLY AND DEMAND
1. Consider a competitive market for which the quantities demanded and supplied (per year) at various prices are given as follows:
Price
(\$ ) Demand Supply (millions) (millions)
60 22 14
80 20 16
100 18 18
120 16 20
a.
6. In 1998, Americans smoked 470 billion cigarettes. The average retail price was \$2 per pack. Statistical studies have shown that the price elasticity of demand is -0.4, and the price elasticity of supply is 0.5. Using this information, derive linear demand and supply curves for the cigarette market.
7. In Example 2.7 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 -0.4 instead of -0.8.
a. Assuming, as before, that the equilibrium price and quantity are P* = 75 cents per pound and Q* = 7.5 million metric tons per year, derive the linear demand curve consistent with the smaller elasticity.
b. Using this demand curve, recalculate the effect of a 20 percent decline in copper demand on the price of copper.
8. Example 2.8 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 = 24.08 - 0.06P
SC = 11.74 + 0.07P.
b. Show that the long-run demand and competitive supply curves are indeed given by
D = 32.18 - 0.51P
SC = 7.78 + 0.29P.
c. During the late 1990s, Saudi Arabia accounted for 3 billion barrels per year of
OPEC’s production. Suppose that war or revolution caused Saudi Arabia to stop producing oil. Use the model above to calculate what would happen