Question

In december 2014, the average price of gasoline in the united states was $2.50 per gallon and consumers bought 7 percent more gasoline than they had during april 2014, when the average price was $3.60 per gallon. based on these numbers, what was the price elasticity of demand for gasoline from april 2014 to december 2014?

a.-0.02
b.-0.19
c.-1.01
d.-2.26

Answer 1

The price elasticity of demand is calculated by dividing the percentage change in quantity by percentage change in price.

Percentage change in quantity is given, but the percentage change in price is not given so we first need to calculate percentage change in price.

Percentage change in price = 2.5/ 3.60 -1

= -30.55%

Price elasticity of demand = % change in quantity/ % change in price

= 7%/ -30.55%

= -0.23

The most approximate answer is option B.