【正文】 (In the case drawn here, c 0.) The curves can then be used to analyze the behavior of the market quantitatively.Understanding and Predicting the Effects of Changing Market Conditions40 of 49Copyright 169。 2022 Pearson Education, Inc. ? Microeconomics ? Pindyck/Rubinfeld, 8e.? Step 1:? Step 2:Demand: Q = a ? bPSupply: Q = c + dPE = (P/Q)(?Q/?P)Demand: ED = ?b(P*/Q*)Supply: ES = d(P*/Q*)a = Q* + bP*Q = a ? bP + fI()()()()()41 of 49Copyright 169。 2022 Pearson Education, Inc. ? Microeconomics ? Pindyck/Rubinfeld, 8e.After reaching a level of about $ per pound in 1980, the price of copper fell sharply to about 60 cents per pound in 1986.Worldwide recessions in 1980 and 1982 contributed to the decline of copper prices.Why did the price increase so sharply after 2022? First, the demand for copper from China and other Asian countries began increasing dramatically. Second, because prices had dropped so much from 1996 through 2022, producers closed unprofitable mines and cut production.What would a decline in demand do to the price of copper? To find out, we can use the linear supply and demand curves.EXAMPLE THE BEHAVIOR OF COPPER PRICES42 of 49Copyright 169。 2022 Pearson Education, Inc. ? Microeconomics ? Pindyck/Rubinfeld, 8e.EXAMPLE THE BEHAVIOR OF COPPER PRICESCopper prices are shown in both nominal (no adjustment for inflation) and real (inflationadjusted) terms. In real terms, copper prices declined steeply from the early 1970s through the mid1980s as demand fell. In 1988–1990, copper prices rose in response to supply disruptions caused by strikes in Peru and Canada but later fell after the strikes ended. Prices declined during the 1996–2022 period but then increased sharply starting in 2022.COPPER PRICES, 1965–2022FIGURE 43 of 49Copyright 169。 2022 Pearson Education, Inc. ? Microeconomics ? Pindyck/Rubinfeld, 8e.COPPER SUPPLY AND DEMANDFIGURE The shift in the demand curve corresponding to a 20percent decline in demand leads to a percent decline in price.EXAMPLE THE BEHAVIOR OF COPPER PRICES44 of 49Copyright 169。 2022 Pearson Education, Inc. ? Microeconomics ? Pindyck/Rubinfeld, 8e.EXAMPLE UPHEAVAL IN THE WORLD OIL MARKETPRICE OF CRUDE OILFIGURE The OPEC cartel and political events caused the price of oil to rise sharply at times. It later fell as supply and demand adjusted.Since the early 1970s, the world oil markethas been buffeted by the OPEC cartel andby political turmoil in the Persian Gulf.45 of 49Copyright 169。 2022 Pearson Education, Inc. ? Microeconomics ? Pindyck/Rubinfeld, 8e.EXAMPLE UPHEAVAL IN THE WORLD OIL MARKETBecause this example is set in 2022–2022, all prices are measured in 2022 dollars. Here are some rough figures:? 2022–2022 world price = $80 per barrel? World demand and total supply = 32 billion barrels per year (bb/yr)? OPEC supply = 13 bb/yr? Competitive (nonOPEC) supply = 19 bb/yrThe following table gives price elasticity estimates for oil supply and demand:SHORT RUN LONG RUNWorld demand: Competitive supply: 46 of 49Copyright 169。 2022 Pearson Education, Inc. ? Microeconomics ? Pindyck/Rubinfeld, 8e.EXAMPLE UPHEAVAL IN THE WORLD OIL MARKETIMPACT OF SAUDI PRODUCTION CUTThe total supply is the sum of petitive (nonOPEC) supply and the 13 bb/yr of OPEC supply. Part (a) shows the shortrun supply and demand curves. If Saudi Arabia stops producing, the supply curve will shift to the left by 3 bb/yr. In the shortrun, price will increase sharply.FIGURE Part (b) shows longrun curves. In the long run, because demand and petitive supply are much more elastic, the impact on price will be much smaller.47 of 49Copyright 169。 2022 Pearson Education, Inc. ? Microeconomics ? Pindyck/Rubinfeld, 8e.EFFECTS OF PRICE CONTROLSWithout price controls, the market clears at the equilibrium price and quantity P0 and Q0. If price is regulated to be no higher than Pmax, the quantity supplied falls to Q1, the quantity demanded increases to Q2, and a shortage develops.FIGURE Effects of GovernmentIntervention—Price Controls48 of 49Copyright 169。 2022 Pearson Education, Inc. ? Microeconomics ? Pindyck/Rubinfeld, 8e.Natural gas prices rose sharply after 2022, as did the prices of oil and other fuels.PRICE OF NATURAL GASFIGURE EXAMPLE PRICE CONTROLS ANDNATURAL GAS SHORTAGES49 of 49Copyright 169。 2022 Pearson Education, Inc. ? Microeconomics ? Pindyck/Rubinfeld, 8e.EXAMPLE PRICE CONTROLS ANDNATURAL GAS SHORTAGES? The (freemarket) wholesale price of natural gas was $ per mcf (thousand cubic feet)。? Production and consumption of gas were 23 Tcf (trillion cubic feet)。? The average price of crude oil (which affects the supply and demand for natural gas) was about $50 per barrel.Supply: Q = + + Demand: Q = ? + Substitute $ for PG in both the supply and demand equations (keeping the price of oil, PO, fixed at $50). You should find that the supply equation gives a quantity supplied of Tcf and the demand equation a quantity demanded of Tcf. Therefore, these price controls would create an excess demand of ? = Tcf.