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11 July, 06:55

Suppose the US demand curve for gasoline shifts rightward, and the U. S. supply curve for gasoline remains unchanged. As a result, the price of gasoline increases by 9 percent, and the equilibrium quantity increases by 3 percent. Which of the following statements is true based on this information? Show Work

A) The price elasticity of demand for gasoline is roughly 0.33.

B) The price elasticity of demand for gasoline is roughly - 3.

C) The price elasticity of supply for gasoline is roughly 0.33.

D) The price elasticity of supply for gasoline is roughly 3.

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Answers (1)
  1. 11 July, 07:23
    0
    Option (a) is correct.

    Explanation:

    Given that,

    Percentage increase in the price of gasoline = 9 percent

    Percentage increase in the quantity demanded = 3 percent

    Therefore, there is a rightward shift in the demand curve for gasoline and supply curve remains the same. Hence, we need to calculate only price elasticity of demand.

    So, the price elasticity of demand is calculated as follows:

    = Percentage increase in the quantity demanded : Percentage increase in the price of gasoline

    = 3 : 9

    = 0.33
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