Question

32. Saudi Crude Oil Supply: Low Prices For crude oil prices of at most $20 per barrel the supply by Saudi Arabia can be approximated by q = 0.34p + 1.2 million barrels per day (12 = p = 20), where p is the price per barrel.84 Calculate the price elastic- ity of supply when the price of oil is $15 per barrel. What does the answer tell you about Saudi oil production?

Answer 1

- - 2 dp recording to the question , q=0.34p+102 e 125ps 20 we know that elasticity E= P dq @ from eq20 8= 0.342170 dq = 0.34 substituting value of ag in eq ② E=1 x 0:34 (0.34pt1:2) -0-34P When P = $15 E= 0.34 X 15 (0.390 41.2) 0.348 15+1.2 = 0.8095 ар
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Since E=0.8095 <1 Hence supply of crude oil is in elastic le change in supply is almost instant regardless price / demand. change