Question

The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to _____, and demand is described as _____.

Answer 1

-0.2; less elastic to price

Step-by-step explanation:

Given that,

Percentage change in the price of gasoline = 5%

Percentage change in the quantity demanded = 1%

Therefore, the price elasticity of demand is as follows:

= Percentage change in the quantity demanded ÷ Percentage change in the price of gasoline

= (-1) ÷ 5

= -0.2

Hence, the demand for gasoline is less elastic to price because higher percentage change in prices will lead to lower percentage change in the quantity demanded.