Question

If the price elasticity of demand for gasoline is known to be .25, what will be the percentage change in the quantity of gasoline demanded if the price of gasoline is raised from $3.00 to $4.00 per gallon?

Answer 1

Point Price elasticity of demand (PED)= % change in quantity demanded /% change in price of gasoline.

New price $4.00, Old price is $3.00

% change in price of gasoline = ((4 - 3)/3)) x 100

                               = 33.33%

Substituting in the price elasticity of demand formula

Let % change in quantity demanded be X

0.25 = X/33.33

X= 8.33

Percentage change in quantity demanded is 8.33%.