Chapter 2, Problem 8E

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.

1. a. 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.
2. b. Using this demand curve, recalculate the effect of a 55-percent decline in copper demand on the price of copper.