Example 2.9 (page 54) analyzes the world oil market. Using the data given in that example: a.

Question:

Example 2.9 (page 54) analyzes the world oil market. Using the data given in that example:

a. Show that the short-run demand and competitive supply curves are indeed given by

D = 33.6 - 0.020P

S_C = 18.05 + 0.012P.

b. Show that the long-run demand and competitive supply curves are indeed given by

D = 41.6 - 0.120P

S_C = 13.3 + 0.071P.

c. In Example 2.9 we examined the impact on price of a disruption of oil from Saudi Arabia. Suppose that instead of a decline in supply, OPEC production increases by 2 billion barrels per year (bb/yr) because the Saudis open large new oil fields. Calculate the effect of this increase in production on the supply of oil in both the short run and the long run.