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Current average gasoline prices in the U.S. are about $2.26/gallon. A year ago, they were about...

Current average gasoline prices in the U.S. are about $2.26/gallon. A year ago, they were about $2.69/gallon. This represents a price decrease over the last year of about 17%. If the own price elasticity of gasoline is -0.2%, by what percentage would you expect the quantity demanded to change over this period?

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Expert Solution

Answer - Elasticity of demand = % change in quantity demanded / % change in price

% change in price = 17% (fall)

Elasticity = -0.2

% change in quantity = 17 * 0.2

= 3.4 %

Hence , as a result of fall in price of gasoline , the demand will rise by about 3.4%.

Rahul Sunny answered 2 years ago
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