The current world production of oil is 350 million barrels per day and the current world price of oil is N$850 per barrel. The price elasticity of demand (ε) is -0.3 and the elasticity of supply (η) is 0.1. Shiwa Investment is planning to enter the world oil market with a daily production of 13 million barrels of oil per day. For simplicity, assume that the supply and demand curves are linear Calculate market price and total supply of oil after Shiwa investment has enter the world oil market and explain why the total supply of oil increases with less than 13 million. i have gotten the following answer though am unable to xplain Elasticity of excess supply = Elasticity of supply - Elasticity of demand Ees=Es−Ed =0.1−(−0.3) =0.1+0.3 =0.4 13 million increase in supply means supply supply increases by 133/50×100=1300/350=3.7% Thus the price will fall by 7.42% and new price will be 629 and total supply (equilibrium quantity) will rise by 7.42×0.1=0.74% Thus the new equilibrium quantity =354.4million The total supply of oil increases with less than 13 million because an increase in supply will shift the supply curve outward and decrease price which will lead to decrease in quantity supplied, Thus net increase in supply is less than 13 million. Dear expert, please show calculations on how price will fall by 7.42% and new price will be 629"
The current world production of oil is 350 million barrels per day and the current world price of oil is N$850 per barrel. The price
Calculate market price and total supply of oil after Shiwa investment has enter the world oil market and explain why the total supply of oil increases with less than 13 million.
i have gotten the following answer though am unable to xplain
Elasticity of
Ees=Es−Ed
=0.1−(−0.3)
=0.1+0.3
=0.4
13 million increase in supply means supply supply increases by
133/50×100=1300/350=3.7%
Thus the price will fall by 7.42% and new price will be 629 and total supply (
7.42×0.1=0.74%
Thus the new equilibrium quantity =354.4million
The total supply of oil increases with less than 13 million because an increase in supply will shift the supply curve outward and decrease price which will lead to decrease in quantity supplied, Thus net increase in supply is less than 13 million.
Dear expert, please show calculations on how price will fall by 7.42% and new price will be 629"
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