Chapter 2, Problem 9E

In Example 2.8 (page 52), we discussed the recent decline in world demand for copper, due in part to China’s decreasing consumption. What would happen, however, if China’s demand were increasing?

1. a. Using the original elasticities of demand and supply (i.e., E_S = 1.5 and E_D = −0.5), calculate the effect of a 20-percent increase in copper demand on the price of copper.
2. b. Now calculate the effect of this increase in demand on the equilibrium quantity, Q*.
3. c. As we discussed in Example 2.8, the U.S. production of copper declined between 2000 and 2003. Calculate the effect on the equilibrium price and quantity of both a 20-percent increase in copper demand (as you just did in part a) and of a 20-percent decline in copper supply.