Question 4 = Suppose the global supply function of crude oil is Qsı 100 + 2P, and the global demand function is QDI = 250-3P, with price in US$ and quantity in terms of millions of barrels. Answer the questions below (round the answers to 2 decimals when necessary). Section A. Suppose that the middle east conflicts between Israel and Arabian countries disrupts the supply of world crude oil, and changes its supply function to Qs2 = 90+ P. a. b. C. d. What are the equilibrium price and quantity of crude oil before the Middle East conflicts? What are the equilibrium price and quantity of crude oil after the Middle East conflicts? Based on your answers in part a and part b, find the price elasticity of demand for crude oil using the midpoint approach. Is it elastic or inelastic? What are consumers' expenditures on crude oil before and after the Middle East conflicts? Do they increase or decrease? Use your answer to part c to briefly explain the reason. Section B. Continue with Section A. Now suppose that middle east conflicts promote EU countries to find new resources for natural gas, which lowers the demand for the crude oil and changes its demand function to Q2 = 220 - 4P. Note that the supply function is still Qs2=90+ P due to the conflicts. e. f. What are the equilibrium price and quantity of crude oil after the finding of the new resources for natural gas? Based on your answers in part b and part e, find the price elasticity of supply for crude oil using the midpoint approach. Is it elastic or inelastic? Section C. Continue with section B. Now suppose that the Middle East conflicts are successfully resolved by international interventions, and hence the supply function of crude oil gets back to Qsi = 100+ 2P. Note that the demand function is still QD2 = 220-4P due to the finding of the new resources for natural gas. g h. i. j. What are the new equilibrium price and quantity of crude oil after the conflicts are solved? Based on your answers in part e and part g, find the new price elasticity of demand for crude oil using the midpoint approach. How is it comparing to the elasticity you find in part c? Now let us consider another situation: move along the new demand curve QD² = 220-4P from the equilibrium price in part a to the equilibrium price in part b. Find the new price elasticity of demand for crude oil using the midpoint approach. How is it comparing to the elasticity you find in part c? In both part h and part i, you compare the new price elasticity of demand for crude oil to that you find in part c. Which comparison makes more sense? Why? Is the result of that comparison consistent with the economic mechanism that you learned in class?

Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter3: Interdependence And The Gains From Trade
Section: Chapter Questions
Problem 9PA
icon
Related questions
Question
Question 4
=
Suppose the global supply function of crude oil is Qsı 100 + 2P, and the global
demand function is QDI = 250-3P, with price in US$ and quantity in terms of
millions of barrels. Answer the questions below (round the answers to 2 decimals
when necessary).
Section A. Suppose that the middle east conflicts between Israel and Arabian
countries disrupts the supply of world crude oil, and changes its supply function to
Qs2 = 90+ P.
a.
b.
C.
d.
What are the equilibrium price and quantity of crude oil before the
Middle East conflicts?
What are the equilibrium price and quantity of crude oil after the
Middle East conflicts?
Based on your answers in part a and part b, find the price elasticity of
demand for crude oil using the midpoint approach. Is it elastic or inelastic?
What are consumers' expenditures on crude oil before and after the
Middle East conflicts? Do they increase or decrease? Use your answer to part c to
briefly explain the reason.
Section B. Continue with Section A. Now suppose that middle east conflicts promote
EU countries to find new resources for natural gas, which lowers the demand for the
crude oil and changes its demand function to Q2 = 220 - 4P. Note that the supply
function is still Qs2=90+ P due to the conflicts.
Transcribed Image Text:Question 4 = Suppose the global supply function of crude oil is Qsı 100 + 2P, and the global demand function is QDI = 250-3P, with price in US$ and quantity in terms of millions of barrels. Answer the questions below (round the answers to 2 decimals when necessary). Section A. Suppose that the middle east conflicts between Israel and Arabian countries disrupts the supply of world crude oil, and changes its supply function to Qs2 = 90+ P. a. b. C. d. What are the equilibrium price and quantity of crude oil before the Middle East conflicts? What are the equilibrium price and quantity of crude oil after the Middle East conflicts? Based on your answers in part a and part b, find the price elasticity of demand for crude oil using the midpoint approach. Is it elastic or inelastic? What are consumers' expenditures on crude oil before and after the Middle East conflicts? Do they increase or decrease? Use your answer to part c to briefly explain the reason. Section B. Continue with Section A. Now suppose that middle east conflicts promote EU countries to find new resources for natural gas, which lowers the demand for the crude oil and changes its demand function to Q2 = 220 - 4P. Note that the supply function is still Qs2=90+ P due to the conflicts.
e.
f.
What are the equilibrium price and quantity of crude oil after the
finding of the new resources for natural gas?
Based on your answers in part b and part e, find the price elasticity of
supply for crude oil using the midpoint approach. Is it elastic or inelastic?
Section C. Continue with section B. Now suppose that the Middle East conflicts are
successfully resolved by international interventions, and hence the supply function of
crude oil gets back to Qsi = 100+ 2P. Note that the demand function is still QD2 =
220-4P due to the finding of the new resources for natural gas.
g
h.
i.
j.
What are the new equilibrium price and quantity of crude oil after the
conflicts are solved?
Based on your answers in part e and part g, find the new price elasticity
of demand for crude oil using the midpoint approach. How is it comparing to the
elasticity you find in part c?
Now let us consider another situation: move along the new demand
curve QD² = 220-4P from the equilibrium price in part a to the equilibrium price
in part b. Find the new price elasticity of demand for crude oil using the midpoint
approach. How is it comparing to the elasticity you find in part c?
In both part h and part i, you compare the new price elasticity of
demand for crude oil to that you find in part c. Which comparison makes more
sense? Why? Is the result of that comparison consistent with the economic
mechanism that you learned in class?
Transcribed Image Text:e. f. What are the equilibrium price and quantity of crude oil after the finding of the new resources for natural gas? Based on your answers in part b and part e, find the price elasticity of supply for crude oil using the midpoint approach. Is it elastic or inelastic? Section C. Continue with section B. Now suppose that the Middle East conflicts are successfully resolved by international interventions, and hence the supply function of crude oil gets back to Qsi = 100+ 2P. Note that the demand function is still QD2 = 220-4P due to the finding of the new resources for natural gas. g h. i. j. What are the new equilibrium price and quantity of crude oil after the conflicts are solved? Based on your answers in part e and part g, find the new price elasticity of demand for crude oil using the midpoint approach. How is it comparing to the elasticity you find in part c? Now let us consider another situation: move along the new demand curve QD² = 220-4P from the equilibrium price in part a to the equilibrium price in part b. Find the new price elasticity of demand for crude oil using the midpoint approach. How is it comparing to the elasticity you find in part c? In both part h and part i, you compare the new price elasticity of demand for crude oil to that you find in part c. Which comparison makes more sense? Why? Is the result of that comparison consistent with the economic mechanism that you learned in class?
Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
Economics
ISBN:
9781337091992
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Macroeconomics (MindTap Course List)
Principles of Macroeconomics (MindTap Course List)
Economics
ISBN:
9781285165912
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Microeconomics (MindTap Course List)
Principles of Microeconomics (MindTap Course List)
Economics
ISBN:
9781305971493
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Economics, 7th Edition (MindTap Cou…
Principles of Economics, 7th Edition (MindTap Cou…
Economics
ISBN:
9781285165875
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning