The price elasticity of the demand for gasoline is .02. The price elasticity of demand for...

The price elasticity of the demand for gasoline is .02. The price elasticity of demand for gasoline at Joe’s service station is 1.2. Explain what might account for the difference in elasticities.

Solutions

Expert Solution

•Price elasticity of demand is defined as the percentage change in quantity demanded due to percentage change in price.

•This difference in elasticity arises because of definition of market.

Narrowly defined markets ( gasoline demand at Joe's service station) has more elastic demand than broadly defined markets ( gasoline demand as a whole).

This is because it is easier to find close substitutes for narrowly defined goods. There can be many such service stations like that of Joe's station which might be providing gasoline so in this case it is very easy to find a substitute to Joe's gas station and that is why demand is more elastic.

On the other hand , gasoline, a broad category has a fairly inelastic demand because there are no good Substitutes for gasoline.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

The price of gasoline is $2.00 and the price elasticity of demand is -0.4. a)How much...

The price of gasoline is $2.00 and the price elasticity of demand is -0.4. a)How much will a 10% reduction in quantity placed on the market increase the price? b) If -0.4 is a short run elasticity, do you expect that this price increase brought about by this reduction in quantity will be more of less in the long run? Why? Show work.

3.Consider the market for gasoline in the U.S. Suppose that the price elasticity of demand has...

3.Consider the market for gasoline in the U.S. Suppose that the price elasticity of demand has been estimated to be 0.3,while the priceelasticity of supply is estimated to be 0.6. Answer the following questions. a)Construct a supply-and-demand diagram that illustrates the free-market equilibrium. How much do buyers pay? How much do sellers receive? Is there a difference between the price paid by buyers and the price received by sellers? b)Suppose the federal government imposes a gasoline tax of $0.50 per...

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 ...

Determine the price elasticity of demand, the cross-price elasticity of demand or the income elasticity in...

Determine the price elasticity of demand, the cross-price elasticity of demand or the income elasticity in the following scenarios a. Consider the market for coffee. Suppose the price rises from $4 to $6 and quantity demanded falls from 120 to 80. What is price elasticity of demand? Is coffee elastic or inelastic? b. John’s income rises from $20,000 to $22,000 and the quantity of hamburger he buys each week falls from 2 pounds to 1 pound. What his income elasticity? Is hamburger...

The price elasticity of demand for product A is 2.32. The price elasticity of demand for...

The price elasticity of demand for product A is 2.32. The price elasticity of demand for product Z is 0.12. This difference could be due to the fact that A. there are many good substitutes for product A and few substitutes for product Z. B. there are many good substitutes for product Z and few substitutes for product A. C. product A is a necessity and product Z is a luxury. D. product Z is a necessity and product A...

Price Elasticity of Demand. Discuss the price elasticity of demand. Is it directly related to the...

Price Elasticity of Demand. Discuss the price elasticity of demand. Is it directly related to the availability of suitable substitutes for a product? Please integrate the Bible passages in your discussion.

Discuss factors affecting the Price Elasticity of Demand, Income Elasticity of Demand, and Cross-price Elasticity of...

Discuss factors affecting the Price Elasticity of Demand, Income Elasticity of Demand, and Cross-price Elasticity of Demand for LUX, a five-star resort in the Maldives. Identify any unique amenities of the resort and forms of transportation to the remote islands. Discuss why forecasting is critical for the success of the one island, one resort concept. Mention the importances of demand (i.e. effective demand, elasticity, inelasticity) and price while tying in with the topic. At least 200 words (important). Thanks in...

Demand Elasticity: 66% Price Elasticity: -11% Using the price elasticity of demand above, if Starbucks decreases...

Demand Elasticity: 66% Price Elasticity: -11% Using the price elasticity of demand above, if Starbucks decreases its price by 10 percent, what would happen to the quantity demanded for Starbucks coffee?

What is elasticity? What is price elasticity of demand? What is price elasticity of supply?

As price elasticity of demand increases, the burden of a taxgets _______; as price elasticity...

As price elasticity of demand increases, the burden of a tax gets _______; as price elasticity of supply increases, the burden of a tax gets _________.(Here, you can read "bigger" as "heavier" and "smaller" as "lighter" if that helps.)A. smaller; biggerB. bigger; smallerC. smaller; smallerD. bigger; bigger

Subjects