In Example 28 we discussed the recent increase in world dema

In Example 28, we discussed the recent increase in world demand for copper, due in part to China\'s rising consumption Using the original elasticities of demand and supply (ie., Es 1.5 and E0.5), 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 pound), and the initial equilibrium quantity is Q18 (million metric tons per year). As a result of this change in demand, the price of copper will | by SD (Enter your response rounded to two decimal places.)

Solution

The Elasticity of demand for copper = -0.5

The increase in the quantity demand = 25%

The Elasticity of demand for copper = -0.5

% change in the quantity demand of copper / % change in the price of the copper = -0.5

25% / % change in the price of the copper = -0.5

% change in the price of the copper = -25%/0.5

=(-)50%

Since the price change in the price is in negative, it means the price has decreased by 50%.

The initial equilibrium price =$3.00

When price decrease by the 50%, it means the new price will be = 50% of $3

=($3*50/100)

=$1.50

Hence it can be said that due to the change in the quantity demand of copper, the price of the copper will decrease by $1.50.