Studies have fixed the short-run price elasticity of demand for gasoline at the pump at -0.20. Suppose that international hos- tilities lead to a sudden cutoff of crude oil supplies. As a result, U.S. supplies of refined gasoline drop 10 percent. a. If gasoline were selling for $2.60 per gallon before the cutoff, how much of a price increase would you expect to see in the coming months? b. Suppose that the government imposes a price ceiling on gas at $2.60 per gallon. How would the relationship between consumers and gas station owners change?

Studies have fixed the short-run price elasticity of demand for gasoline at the pump at -0.20. Suppose that international hos- tilities lead to a sudden cutoff of crude oil supplies. As a result, U.S. supplies of refined gasoline drop 10 percent. a. If gasoline were selling for $2.60 per gallon before the cutoff, how much of a price increase would you expect to see in the coming months? b. Suppose that the government imposes a price ceiling on gas at $2.60 per gallon. How would the relationship between consumers and gas station owners change?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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