The current price of gasoline in a city is about $3.25 per gallon. As we all kno

Question

The current price of gasoline in a city is about $3.25 per gallon. As we all know, the price of gas can change a lot from year to year and even from month to month.

For this discussion, please create a thread about your personal price elasticity of demand for gasoline which answers the following questions: how many gallons of gasoline do you currently buy per month? How many gallons would you buy next month and how would your behavior change if the price doubled overnight? Also, based on that information, what is your price elasticity of demand for gasoline? Be sure to show how you calculated your price elasticity of demand.

Explanation / Answer

Currently I buy 75 gallons of gasoline per month.For next month my gasoline consumption will be same as previous month. If price doubled I have to resort to methods to reduce my consumption such as Car pooling and when going to Supermarket do some other work also such that another trip by car is required. Hence I might be able to bring a drop in my gasoline consumption by 60 gallons.

Decrease in consumption:(60-75)*100/75=-20%

Increase in Oil prices: 100%

Price Elasticity = (% Change in Quantity) / (% Change in Price)

price elasticity of demand: -20%/100% =-0.2

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