question archive Assume world oil supply is 68 million barrels per day at a price of $48 per barrel
Assume world oil supply is 68 million barrels per day at a price of $48 per barrel
Subject:EconomicsPrice:2.88 Bought3
Assume world oil supply is 68 million barrels per day at a price of $48 per barrel. Suppose that if the price per barrel of oil increases to $55 per day, then 84 million barrels of oil will be supplied. Using the midpoint formula, what is the price elasticity of supply for oil?
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Mid Point Formula of Elasticity
Elasticity = Q2 - Q1 / (Q2 + Q1/2) / P2-P1 / (P2+P1/2)
= 84-68/ (68 +84/2) / 55 -48 / (55+48/2)
= 16 /( 152/2) / 7/ (103/2)
= 16/ 76 / 14/103
= 4/19 / 14/103
= 4 * 103 / 19 *14 = 206 / 133 = 1. 55
Hence the Elasticity of the oil is 1.55. This implies that the supply of oil is relatively price elastic.
