Question

Assume that the price elasticity of demand for gasoline in the United State is 0.3. If the president wanted to reduce gasoline consumption in the United State by 30 percent, by how much would prices have to be increased?

Answer 1

Price elasticity of demand is calculated by % change in Quantity demand divided by % change in Price. from the given question, Price elasticity of demand for gasoline in United state is 0.3 and the president want to reduce gasoline consumprtion by 30%. Now we have to find out how much would prices have to be increased.

Then according to the equation of Price elasticity of demand,

PED= % change in QD divided by % change in Price

so,

0.3 = -%30 / %P

Then,

0.3*-30 = %9.

So 9 percent price have to be increased