Use the World View article and price-cut information to answer one question. WOR
ID: 1136556 • Letter: U
Question
Use the World View article and price-cut information to answer one question. WORLDVIEW Rebounding Oil Price Spurs More Rigs The recent spike in the price of oil has brought more rigs on line. According to the weekly Baker Hughes count, the number of active oil rigs has jumped 60 percent since last year. When oil prices were falling, the number of active U.S. rigs fell from 2,000 in 2015 to only 480 in 2016. The latest survey, for the week of March 10, 2017 put the number at 762. Higher-cost shale producers in the Permian basin are quick to respond to higher oil prices, acting as the marginal producer. Overall, economists estimate the elasticity of oil supply at around 0.1 Source: Media reports of March 2017 Calculate the price elasticity of supply between 2016 and 2017 if the price of oil increased by 20 percent in the same time period. Instructions: Round your response to one decimal place.Explanation / Answer
From the information provided till Match 2017, Q1 (2016) was 480 and Q2 (2017) = 762. Price is increased by 20% so elasicity of supply will be
es = % change in Qs / % change in price
es = (762 - 480)*100/480 / 20%
es = 2.9375
Hence the price elasticity of supply es = 2.9375 or approximately 2.9.
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