Exercise 9 Exercise Score: 0.25 of 1 pt Assignment Score: 65.67% (9.85 of 15 pts

Question

Exercise 9 Exercise Score: 0.25 of 1 pt Assignment Score: 65.67% (9.85 of 15 pts) 11 of 15 complete 2 In Example 2.8, we discussed the recent increase in world demand for copper, due in part to China's rising consumption. 2 3 Using the original elasticities of demand and supply (i.e., 1.5 and E 0.5), calculate the effect of a 25-percent increase in copper demand on the price of copper Recall that the demand equation is Q 27-3P, the supply equation is Q 9+9P, the initial equilibrium price is P* $3.00 (dollars per X pound), and the initial equilibrium quantity is Q* 18 (million metric tons per year) As a result of this change in demand, the price of copper will increase by S 0.35. (Enter your response rounded to two decimal places Ga ow calculate the effect of this change in demand on the equilibrium quantity, Q As a result of this change in demand, the equilibrium quantity will by million metric tons per year. Enter your response rounded to two decimal places.) Enter your answer in the answer box, then click Check Answer.

Explanation / Answer

eD = -0.25

If price decreases by 1%, quantity demanded increases by 0.25%.

Qd = 27 - 3P

If Qd increased by 25%, new demand curve is:

Qd1 = 33.75 - 3.75P

Qs = - 9 + 9P

Equating,

33.75 - 3.75P = - 9 + 9P

12.75P = 42.75

P = 3.35

So, P increased by 0.35.

Q = - 9 + 9P = - 9 + (9 x 3.35) = 21.15

So, Q increases by 3.15 (Since previous Q was 18).

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