Derive the linear demand and supply, Microeconomics

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Suppose that the short-run world demand and supply elasticities for crude oil are -0.076 and 0.088, respectively. The current price per barrel is $30 and the short -run equilibrium quantity is 23.84 billion barrels per year (bb/yr).

(i)  Derive the linear demand and supply equations.

(ii) The opening of a new pipeline is expected to add to oil supply. If the crude oil supply increases by 0.5 bb/yr, what will be the new world price and quantity of oil?

(iii)Did total oil production increase by 0.5bb? If not, explain why (hint: it does not) and use a graph of Supply and Demand illustrating this.

 


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