21 May DESCRIBE THE CHANGE IN THE SUPPLY AND DEMAND CURVES OVER THE PAST YEAR USING YOUR DIAGRAM FROM PART
You have been asked to analyze the market for steel. From public sources, you are able to
find that last year’s price for steel was $20 per ton. At this price, 100 million tons were sold on the worldmarket. From trade association data you are able to obtain estimates for the own price elasticities ofdemand and supply on the world markets as ?0.25 for demand and 0.5 for supply. Assume that steel haslinear demand and supply curves throughout.
(a) Solve for the equations of demand and supply in this market and sketch the demand and
supply curves. 1
(b) Suppose that you discover that the current price of steel is $15 per ton and the current level
of worldwide sales of steel is 150 million tons. The most recent elasticity estimates from the trade association this year are ?0.125 for demand and 0.25 for supply. Describe the change in the supply and demand curves over the past year using your diagram from part (a). What sort of event(s) might explainthe change?
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