EBK INTERMEDIATE MICROECONOMICS AND ITS
12th Edition
ISBN: 9781305176386
Author: Snyder
Publisher: YUZU
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Question
Chapter 1A.5, Problem 1TTA
To determine
To explain the operation of OPEC in term of
Expert Solution & Answer
Explanation of Solution
The following figure shows the effects on supply and demand:
In the case of the oil market, when supply decreases, the response depends on the time horizon. The operation of OPEC varies in the short-run and in the long run.
Fig A. shows that when the demand and supply is inelastic, then the shift in supply curve (S1 to S2) leads to a greater increase in price.
However, in the long run, when supply and demand is elastic, then shift in supply curve (S1 to S2) in fig b. leads to a small increase in price (P1 to P2). Thus, in the shortrun, the price increases to at a greater degree as compared to the long run.
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Students have asked these similar questions
Suppose that the world price of oil is roughly
$90.00 per barrel and that the world demand and
total world supply of oil equal 34 billion barrels per
year (bb/yr), with a competitive supply of 20 bb/yr
and 14 bb/yr from OPEC. Statistical studies have
shown that the long-run price elasticity of
demand for oil is -0.40, and the long-run
competitive price elasticity of supply is 0.40.
Using this information, derive linear demand and
competitive supply curves for oil.
Let the demand curve be of the general form
Q=a-bP
and the competitive supply curve be of the
general form
Q=c+dP,
where a, b, c, and d are constants.
The equation for the long-run demand curve is
A.Q=47.50-0.15P.
B.Q=13.50-47.50P.
C.Q=47.50-P.
D.Q=47.50+0.15P.
E.Q=13.50-0.15P.
The opening statement on the website of the Organization of Petroleum Exporting Countries (OPEC) says its members seek “ … to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry.” To achieve these goals, OPEC attempts to coordinate and unify petroleum policies by raising or lowering its members’ collective oil production. However, increased production by the United States, Russia, Oman, Mexico, Norway, and other non-OPEC countries has placed downward pressure on the price of crude oil.
Please explain:
To achieve these goals of stable and fair oil prices, what must OPEC do to maintain the price of oil at its desired level?
How easy is it for OPEC to achieve this goal?
Suppose that the world price of oil is roughly $50.00 per barrel and that the world demand and total world supply of oil equal 34 billion barrels per year (bb/yr), with a competitive supply of 20 bb/yr and 14 bb/yr from OPEC.
Statistical studies have shown that the long-run price elasticity f demand for oil is -0.40, and the long-run competitive price elasticity of supply is 0.40. Using this information, derive linear demand and competitive
supply curves for oil.
Let the demand curve be of the general form Q = a - bP and the competitive supply curve be of the general form Q = c+dP, where a, b, c, and d are constants.
The equation for the long-run demand curve is
O A. Q=47.50 -0.27P.
O B. Q=13.50 -0.27P.
OC. Q=47.50-P
O D. Q=47.50+ 0.27P.
O E. Q=13.50-47.50P.
The equation for the long-run competitive supply curve is
O A. Q=12.00 + 47.50P.
OB. Q=12.00 -0.16P.
OC. Q 8.00+ 0.16P.
O D. Q=8.00+ 0.27P.
O E. Q=12.00 +0.16P.
Chapter 1A Solutions
EBK INTERMEDIATE MICROECONOMICS AND ITS
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