Question

Six months​ ago, the price of gasoline was​ $2.20 per gallon.​ Now, the price is​ $2.40 per gallon. In response to this price​ increase, the number of gallons of gasoline purchased has declined by 2 percent. Based on this​ information, what is the absolute price elasticity of demand for​ gasoline?

Answer 1

4.545

Step-by-step explanation:

Given:

Six months​ ago, the price of gasoline was​ $2.20 per gallon.

Now, the price is​ $2.40 per gallon.

In response to this price​ increase, the number of gallons of gasoline purchased has declined by 2 percent.

Question asked:

Based on this​ information, what is the absolute price elasticity of demand for​ gasoline?

Solution:

As we know:

Price elasticity of demand =
`(\% change\ in\ quantity\ demanded)/(\% change\ in\ price)`

`\% change\ in\ quantity\ demanded =`
`(new\ value-old \ value)/(old\ value) *100\\`

`=(2.40-2.20)/(2.20) *100\\\\ =(0.2)/(2.20) *100\\ \\ =(20)/(2.20) \\ \\ =9.09`

`\% change\ in\ price=2` ( given)

Price elasticity of demand =
`(\% change\ in\ quantity\ demanded)/(\% change\ in\ price)`

`=(9.09)/(2) \\ \\ =4.545`

Thus, the absolute price elasticity of demand for​ gasoline is 4.545