Refer to the “In the News” below: U.S. drivers bought about 2.4 million fewer ga

Question

Refer to the “In the News” below:

U.S. drivers bought about 2.4 million fewer gallons of gasoline last week, compared to a year ago. That’s a 3.6 percent drop in the volume of gasoline sold. Price appears to be the culprit. Faced with a 32 percent jump in gas prices since last year, consumers are cutting back on nonessential trips and using public transit more often.

Source: News reports, April 12-15, 2011.

What was the price elasticity of demand for gasoline?

Instructions: Enter your response rounded to two decimal places.

U.S. drivers bought about 2.4 million fewer gallons of gasoline last week, compared to a year ago. That’s a 3.6 percent drop in the volume of gasoline sold. Price appears to be the culprit. Faced with a 32 percent jump in gas prices since last year, consumers are cutting back on nonessential trips and using public transit more often.

Source: News reports, April 12-15, 2011.

Explanation / Answer

The price elasticity of demand measures the responsiveness in demand due to change in price of the commodity

=%change in Quantity demanded/%change in price

%change in Quantity demanded=3.6

%change in price = 32

=3.6 /32

=0.1125

The elasticity is relatively inelastic as the gasoline is used as a basic commodity and the demand will not be affected much with a change in price upward.

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.