Suppose the demand and supply curves of world oil market are

Suppose the demand and supply curves of world oil market are given by:

Qd= 24.08 – 0.06P

QS = 21.74 + 0.07 P

Where Q is measured in billion barrels and P is measured in dollars per barrel.

Calculate the equilibrium price

Calculate the price elasticity of demand at the equilibrium point.

If the price is set at 17. What would happen to the market?

At equilibrium,

Qd = QS

or, 24.08 – 0.06P = 21.74 + 0.07 P

or, P = 18

Q = 23

Qd= 24.08 – 0.06P

dQ/dP = -0.06

Price elasticity of demand = 18/23(-.06) = - 0.05

If P = 17, then Qd = 23.06 & Qs = 22.93

Therefore, the market will not be in equilibrium.