Suppose that the world price of oil is roughly $70.00 per barrel and that the world demand and total world supply of oil equal 34 billion barrels per year (bb/yr), with a competitive supply of 20 bb/yr and 14 bb/yr from OPEC. Statistical studies have shown that the short−run price elasticity of demand for oil is −0.05 and the short−run competitive price elasticity of supply is 0.10. Using this information, derive linear demand and competitive supply curves for oil. Let the demand curve be of the general form Q=a−bP and the competitive supply curve be of the general form Q=c+dP, where a, b, c, and d are constants. The equation for the short−run demand curve is A.Q = 35.40 − 0.02P. B.Q=35.40 − P. C.Q=35.40+0.02P. D.Q=1.40−35.40P. E. Q=1.40−0.02P. The equation for the short-run competitive supply curve is A.Q=17.90+35.40P. B.Q=2.10+0.03P. C.Q=2.10+0.02P. D.Q=17.90−0.03P. E.Q=17.90+0.03P.
