Answered: If the price elasticity of demand for…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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If the price elasticity of demand for gasoline equals 0.3, then qn increase in the price of a gallon of gasoline from $3.70 to $3.90

A) decreases total revenue.

B) increases total revenue.

C) leads to no change in total revenue.

D) makes the demand for gasoline elastic.

E) Both answers B and D are correct.

Expert Solution

Step 1

Price elasticity of demand

The quantity requested sensitivity to price is gauged by the price elasticity of demand.
Nearly all goods have a decrease in demand when the price increase however certain goods experience a greater decline in demand than others.
The quantity demanded will change by a certain percentage when a price increases by 1% while holding all other factors constant.
A two percent drop in quantity demanded results from the a 1% price increase if indeed the elasticity is equal to two.
Other elasticities quantify how changes in one variable affect the quantity demanded, such as the demand's elasticity to changes in consumer income.

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