# Supply and Demand and United States

6544 WordsDec 9, 201327 Pages
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.…show more content…
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