Question

In: Economics

Use the below data to estimate the price elasticity of demand for retail gasoline using a...

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

Solutions

Expert Solution

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


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