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What is the equilibrium price and quantity for natural gas

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Reference no: EM131777994

Question: The supply and demand functions for natural gas from 1950 to 2007 are followings.

QS = 0.02 + 0.7Pg + 0.045Po + 0.06I

QD = 148.82 - 1.8Pg + 0.069Po + 0.05I

Where P_g is the price of natural gas, P_o is the price of crude oil, the average price of oil is about $50 per barrel, and the income is $5000.

(i) What is the equilibrium price and quantity for natural gas, i.e. (P_g*,Q_g*)? Explain verbally!

(ii) Calculate the price elasticity, income elasticity and cross price elasticity for the demand of natural gas at the equilibrium, and explain briefly.

(iii) Calculate the price elasticity, income elasticity and cross price elasticity for the supply of natural gas at the equilibrium, and explain briefly.

(iv) Explain the supply and demand functions briefly, e.g. the estimates of variables and their positive/negative signs.

Reference no: EM131777994

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