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Suppose in the U.S. natural gas market, estimated price elasticity of demand is 0.05, estimated price...

Suppose in the U.S. natural gas market, estimated price elasticity of demand is 0.05, estimated price elasticity of supply is 0.1, the equilibrium price is $50 per mcf (thousand cubic feet), equilibrium quantity is 20 tcf (trillion cubic feet)

a. Find demand and supply functions for natural gas?

b. suppose the discovery of natural gas field increases supply by 2 tcf at all price levels. Calculate the effect of this increase in production on equilibrium price of natural gas.

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Answer #1

Note : We have made the assumption of linear supply and demand functions because the price elasticities of both supply and demand do not change.

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