021 points Refer to the \"World View below World View: OPEC Agrees to Maintain I

Question

021 points Refer to the "World View below World View: OPEC Agrees to Maintain Its Oil Output Ceiling at 30 Miltion Barrels per Day VIENNA, June 11 (AFP OPEC, the oil exporters' cartel, opted Wednesday to keep its output ceiling unchanged, expressing confidence in the market despite global supply strains that have kept prices high this year The Organization of Petroleum Exporting Countrios (OPEC), which pumps one-third of the world's oil, sad thatl momber nations had docidod to hoild their collective production target at 30 milion per day (bpd), where it has stood since late 2011 Saudi Arabis, the cartel's most influential player biggest producer, added affer the announcement that t was "very happy" with the state of the global oil market held in positive temtory after the OPEC decision, with Brent North Sea crude up 40 cents at $109 92 a barrel Suce une 11, 2014 AFP f the price elasticity of demand for oil is 0.3, by how much would oil prices have falen in 2014 had OPEC increased output from 30 to 32 million barrels per day rather than holding output constant Instructions: Enter your response as a percent rounded to two decimal paces (do not include the negative sign) Use the mi oint formula. References eBook& Resources Worksheet Learning Objective: 11-03 How interdependence affects oligopolists pricing dedisions

Explanation / Answer

Let the price has been changed to x

Let percentage change in price be y

Q1 = 30 million

Q2 = 32 million

P1 = $109.92

P2 = x

Percentage change in Quantity

= (Q2-Q1) / ((Q1+Q2)/2)

= (32-30) / ((30+32)/2)

= 2 / 31

= 6.4516%

Percentage change in Price

= (P2-P1) / ((P1+P2)/2)

= (109.92-x) / ((109.92+x)/2)

Price Elasticity of demand = Percentage change in quantity / Percentage change in price

This implies, 0.3 = 6.4516 / y

x = 21.50533%

(109.92-x) / ((109.92+x)/2) = 0.21505333

109.92-x = 11.81933 + 0.10752666x

1.107526666x = 98.1

x = 88.5757

Percenage of change that the prices have fallen

= (109.92 - 88.5757) / 109.92

= 19.418%

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