Chapter 7.2, Problem 6R

To determine

To evaluate: The situations that affect the demand elasticity of gas and also to determine the demand for gasoline is elastic or inelastic in the U.S.

Explanation of Solution

Gasoline is a fairly inelastic commodity in the United States which means that price increases have little impact on demand. Price elasticity tests that demand is responsive to market changes. Nearly all price elasticity is negative: price increases contribute to lower demand, and vice versa.

Goods that are necessities are usually inelastic, which means a price shift are unlikely to affect demand. For example, if the gasoline price increases, the demand doesn't shift all that much as people continue to use their vehicles to get to work. Comfort and luxury goods appear to be more elastic, since changes in an economic variable can result in less demand from consumers.

The chart listing different situations that can affect the demand of gasoline is given below:

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Economics Concept Introduction

Introduction: The price elasticity of demand is an indicator of consumers' sensitivity to a change in the cost of a commodity. The more common definition, elasticity of demand evaluates the effect of a change in any of a number of variables, also including the commodity price.