| Question |
In the chapter, using an estimate of the short-run elasticity of demand for oil (0.06), we found that a crisis that eliminated half of Persian Gulf oil supplies would cause the world price to rise from $60 to about $125 per barrel in the short run. In the long run, the elasticity of demand for oil is considerably greater. Using the long-run elasticity value for the U.S. in Table 3, and a starting price of $60 per barrel, forecast the new long-run price after a crisis that wipes out half of Persian Gulf oil for a prolonged period. |
