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3. Use the elasticity formnula as you solve the following issue related to a prot OM-IP just over a decade ago. In November 2007, the world price of oil stood at about $96 per barrel and the equilibrium quantity was steady at about 85 million barrels per day. If the U.S. chose to increase the world supply of oil by selling 2 million barrels per day from its Strategic Petroleum Reserve (which, at the time, had about 700 million barrels of oil), the price of oil would fall to approximately

3. Use the elasticity formnula as you solve the following issue related to a prot OM-IP just over a decade ago. In November 2007, the world price of oil stood at about $96 per barrel and the equilibrium quantity was steady at about 85 million barrels per day. If the U.S. chose to increase the world supply of oil by selling 2 million barrels per day from its Strategic Petroleum Reserve (which, at the time, had about 700 million barrels of oil), the price of oil would fall to approximately

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Certainly! Here's a transcription of the text and an explanation of the diagram for educational purposes: --- ### Document Transcription 4. If the government placed a $500 tax on luxury cars, the price paid by consumers will rise by: a. more than $500. b. less than $500. c. exactly $500. d. None of the above; the price will not change at all. 5. In the diagram shown below, the price ceiling: a. causes a shortage of 45 units of the good. b. makes it necessary for sellers to ration the good. c. is not binding because it is set below the equilibrium price. d. Both (a) and (b) are correct. 6. Suppose a city eliminates rent controls (i.e., government interference in the form of a price ceiling) at a time when the vacancy rate for housing is extremely low. Which of the following is most likely to occur? (The text ends abruptly and additional options or explanations are not provided.) ### Diagram Explanation The diagram accompanying question 5 appears to illustrate a supply and demand graph, typically used to demonstrate how price ceilings impact market equilibrium. - **Axes:** - The vertical axis represents the price of the good. - The horizontal axis represents the quantity of the good. - **Curves:** - The upward sloping line represents the supply curve. - The downward sloping line represents the demand curve. - **Price Ceiling:** - A horizontal line (labeled as a 'price ceiling') is drawn below the equilibrium point, where supply and demand curves intersect. **Analysis:** - The price ceiling being below equilibrium suggests it is binding and causes a misalignment between supply and demand. - The shortage is shown by the difference in quantity where the demand at the price ceiling is higher than the supply available. - It implies both a shortage of 45 units and the necessity for sellers to ration the good, supporting options a and b. --- This transcription and explanation can aid students in understanding how taxes and government-imposed price controls like rent ceilings affect market dynamics and pricing.
Transcribed Image Text:Certainly! Here's a transcription of the text and an explanation of the diagram for educational purposes: --- ### Document Transcription 4. If the government placed a $500 tax on luxury cars, the price paid by consumers will rise by: a. more than $500. b. less than $500. c. exactly $500. d. None of the above; the price will not change at all. 5. In the diagram shown below, the price ceiling: a. causes a shortage of 45 units of the good. b. makes it necessary for sellers to ration the good. c. is not binding because it is set below the equilibrium price. d. Both (a) and (b) are correct. 6. Suppose a city eliminates rent controls (i.e., government interference in the form of a price ceiling) at a time when the vacancy rate for housing is extremely low. Which of the following is most likely to occur? (The text ends abruptly and additional options or explanations are not provided.) ### Diagram Explanation The diagram accompanying question 5 appears to illustrate a supply and demand graph, typically used to demonstrate how price ceilings impact market equilibrium. - **Axes:** - The vertical axis represents the price of the good. - The horizontal axis represents the quantity of the good. - **Curves:** - The upward sloping line represents the supply curve. - The downward sloping line represents the demand curve. - **Price Ceiling:** - A horizontal line (labeled as a 'price ceiling') is drawn below the equilibrium point, where supply and demand curves intersect. **Analysis:** - The price ceiling being below equilibrium suggests it is binding and causes a misalignment between supply and demand. - The shortage is shown by the difference in quantity where the demand at the price ceiling is higher than the supply available. - It implies both a shortage of 45 units and the necessity for sellers to ration the good, supporting options a and b. --- This transcription and explanation can aid students in understanding how taxes and government-imposed price controls like rent ceilings affect market dynamics and pricing.
**Transcription for Educational Website** ### Understanding Price Elasticity #### Key Points: 1. **Unit Price Elastic**: Constant price elasticity. 2. **Information Limitation**: Sometimes, it's impossible to determine the implied elasticity values based on available information. #### Practical Application of Elasticity 3. **Real-World Problem in Oil Pricing** - In November 2007, the world price of oil was approximately $96 per barrel. - The equilibrium quantity was around 85 million barrels per day. - Hypothetical Scenario: If the U.S. increased the world supply by selling 2 million barrels per day from its Strategic Petroleum Reserve, the price would likely fall. **Question**: To what price might the oil cost fall? - **Elasticity Insight**: Short-run price elasticity of demand for oil is highly inelastic, estimated around 0.2. - **Important Note**: Because the price change is relatively small, calculate the percentage change for both P (price) and Q (quantity) using the starting point, not the midpoint. **Price Options**: - a. $94 - b. $90 - c. $85 - d. $80 4. **Government Tax Implications on Luxury Cars** - If a $500 tax is imposed, the price paid by consumers will likely rise by: - a. More than $500. - b. Less than $500. - c. Exactly $500. - d. None of the above; the price will not change at all.
Transcribed Image Text:**Transcription for Educational Website** ### Understanding Price Elasticity #### Key Points: 1. **Unit Price Elastic**: Constant price elasticity. 2. **Information Limitation**: Sometimes, it's impossible to determine the implied elasticity values based on available information. #### Practical Application of Elasticity 3. **Real-World Problem in Oil Pricing** - In November 2007, the world price of oil was approximately $96 per barrel. - The equilibrium quantity was around 85 million barrels per day. - Hypothetical Scenario: If the U.S. increased the world supply by selling 2 million barrels per day from its Strategic Petroleum Reserve, the price would likely fall. **Question**: To what price might the oil cost fall? - **Elasticity Insight**: Short-run price elasticity of demand for oil is highly inelastic, estimated around 0.2. - **Important Note**: Because the price change is relatively small, calculate the percentage change for both P (price) and Q (quantity) using the starting point, not the midpoint. **Price Options**: - a. $94 - b. $90 - c. $85 - d. $80 4. **Government Tax Implications on Luxury Cars** - If a $500 tax is imposed, the price paid by consumers will likely rise by: - a. More than $500. - b. Less than $500. - c. Exactly $500. - d. None of the above; the price will not change at all.
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