The Organization of the Petroleum Exporting Countries [OPEC] serves the global oil market.Suppose Saudi Arabia,an OPEC member country,produces 50% of the oil supplied to this market.The elasticity of market demand is 0.4 and the elasticity of supply for the other eleven OPEC countries is 1.What is the elasticity of demand for oil produced by Saudi Arabia?
A)0.4
B)2.4
C)1.8
D)3.4

Question

Quizplus · Accepted Answer

The elasticity of demand for Saudi Arabia's oil can be calculated using the formula for the elasticity of demand for a dominant firm: Ed = (Em - Es)/(1 - S), where Em is the market demand elasticity (0.4), Es is the supply elasticity of other producers (1), and S is the market share of the dominant firm (0.5). Plugging in the values: Ed = (0.4 - 1)/(1 - 0.5) = -0.6/0.5 = -1.2. The absolute value is 1.8.

The Organization of the Petroleum Exporting Countries [OPEC] Serves the Global