APEC 343 Problem Set 1 - Spring 2020 Problem 3 (5 points) According to a recent Wall Street Journal article a side-effect of the Covid-19 scare has been a drop in global crude oil demand. This has led to a price drop for barrels of crude oil. As of January 20th, 2020, according to the article, crude oil prices hit a maximum of $65.20 per barrel. The most recent price given in the article was $55.18 on February 13th. Say that the global oil quantity supplied on January 20th was Qi = 80 (measured in millions of barrels). This dropped to Q2 = 78.55 (millions of barrels) on February 13th. (a) Calculate the price elasticity of supply. Is it elastic, unit elastic, or inelastic? (b) If prices decreased further by 1% over the next month, by what percentage would quantity supplied decrease? (c) Given what you know about the substitutability of oil, would you predict real-world price elasticity of demand for oil to be elastic, unit elastic, or inelastic? Why? Maximum word count: 20 words! If you write more than 20 words, you will receive zero (0) points. (d) Say the government leads an effort to invest in renewable energy, leading to the discovery of cheap new energy sources that are now widely available to consumers. How would this development change your predictions about the elasticity of demand for oil? Maximum word count: 20 words! If you write more than 20 words, you will receive zero (0) points