Iran supplies 10% of the world market in Crude oil. The market demand for Crude is price-inelastic, with εCC = -0.25. The Ayatollah has come up with a new idea – “we’ll withhold half of our oil from the market, raise price and get more revenue, given that demand is so inelastic. 

You are the economic advisor to the Ayatollah. 

a) Is the Ayatollah right?

b) Explain your answer to (a).

Answer rating: 100% (QA)

Elastic demand is one in which the change in quantity demanded due to a change in price is large Ine... View the full answer