Question

Use the below data to estimate the price elasticity of demand for retail gasoline using a log-linear model to identify how different factors may impact the price elasticity of demand for gasoline:

	Gasoline Sales (in thousands of gal)	Prices (in $/gal)	# of vehicles sold (in millions)	Income Per Capita
Month 1	19,492	$            2.31	17.026	$             45,404
Month 2	20,134	$            2.52	17.773	$             45,490
Month 3	20,049	$            2.80	17.049	$             45,453
Month 4	20,561	$            2.86	17.933	$             45,474
Month 5	20,697	$            2.72	17.705	$             45,555
Month 6	20,561	$            2.74	17.442	$             45,495
Month 7	21,382	$            2.62	17.512	$             45,695
Month 8	19,837	$            2.59	17.723	$             45,809
Month 9	19,997	$            2.63	17.046	$             45,719
Month 10	19,907	$            2.60	17.447	$             45,860
Month 11	19,428	$            2.56	17.120	$             45,790
Month 12	18,989	$            2.55	17.352	$             45,981

Answer 1

Price elasticity of demand for retail gasoline is 0.03678

As elasticity vary between -1 to 1 so we can say that price elasticity of demand for retail gasoline is a luxury good