This story from the WSJ (Sept. 2019) reports that crude oil prices increases about 8% when drone strikes reduces the quantity supplied by about 5%.
- What is the implied (short-run) elasticity of demand?
- Why might demand be more inelastic than the estimate? Hint: Saudi Arabia is apparently promising to tap into its reserves to keep meeting customer demand. And Trump said he authorized the US to dip into reserves of its own if needed to keep markets "well-supplied."
- Why might demand be more elastic than the estimate? Hint: How much do traders think supplies will decrease in future drone strikes?
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