Coal is one of the most important primary fossil fuels, a solid carbon-rich material that is usually brown or black and most often occurs in stratified sedimentary deposits. Coal can be considered a hydrogen-deficient hydrocarbon with a hydrogen-to-carbon ratio near 0.8, as compared with a liquid hydrocarbons ratio near 2 (for propane, ethane, butane, and other forms of natural gas) and a gaseous hydrocarbons ratio near 4 (for gasoline). For this reason, any process used to convert coal to alternative fuels must add hydrogen (either directly or in the form of water). Assume the price of coal yesterday was USD$20/tonne with the demand is 10 tons. today, the price of coal has increased to USD$25/tonne and the quantity demand falls to 5 tonnes.

QUESTIONS

1. Use the total revenue calculation to determine the demand is relatively elastic or relatively inelastic.

2. Calculate the elasticity of the demand coefficient.

3. Calculate the elasticity of supply if the change in price caused the quantity supplied to increase from 10 to 25 tons.

4. Assume the increase in the price of coals decreased the quantity demanded for natural gas. Identify if these two products are substitutes or compliments.