Answered: During 1979 an interruption in oil…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

During 1979 an interruption in oil supplies from the Middle East caused the price of home heating oil to rise by more than 100 percent. Concern about how the sudden price increase would impact poor families led the government to seek oil from the world market. Suppose that domestic market demand and supply curves are given as follows:

P = 16 – 2Q^D P = 4 + Q^S

where Q^D is the quantity demand, Q^S is the quantity supplied, and P is price ($s/unit).

Solve for the equilibrium price and quantity of home heating oil in the domestic market.
How many barrels of oil will consumers purchase if the world price is $6/unit?

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