or Studies have fixed the short-rum price elasticity of demand for gasoline at t
ID: 1154151 • Letter: O
Question
or Studies have fixed the short-rum price elasticity of demand for gasoline at the pump at -020. Suppose that international hostilities ead to a sudden cut-off of crude oil supplies As a result, U S supplies of refined gasoline drop 15 percent eiling o s price nd an li gasoline were selling for $1.50 per gallon before the cut-off what new price would you expect to see in the coming months? (Hint Use the absolute value of the gasoline elasticity coefficient and treat all values as positive) The price of gasoline will be Sper gallon IRound your response lo two decimal places) gas station owners change? It would cause a govenment imposes a price celling on gas at $1.00 per gallon How would the relationship between consumers and ?l of gasolineExplanation / Answer
Elasticity of demand= % change in quantity / % change in price
0.20 = 15 / %change in price
% change in price= 15/0.20= 75%
New price= initial price + change in price
= 1.50 + 0.75*1.50= 2.625
The price of gasoline will be 2.62
Price ceiling of 1 results in price below the equilibrium price. At lower price demand is greater than supply which leads to shortage of gasoline.
It would cause shortage of gasoline.
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