Question

As gas costs​ soar, buyers are flocking to small cars

Faced with high gas​ prices, Americans are substituting smaller cars for SUVs. In April​ 2008, Toyota Yaris sales increased 46 percent and Ford Focus sales increased 32 percent from a year earlier. Sales of SUVs decreased by more than 25 percent in 2008 and Chevrolet Tahoe sales fell 35 percent.​Full-size pickup sales decreased more than 15 percent in 2008 and Ford​ F-Series pickup sales decreased by 27 percent in April 2008. The effect of a downsized vehicle fleet on fuel consumption is unknown. In​ California, gasoline bought decreased by 4 percent in January 2008 from a year earlier.

​Source:The

New YorkTimes​,

​ May, 2, 2009

Use the information in the news​ clip, along with the fact that in​ California, the price of gasoline in January 2008 increased by about 30 percent from a year earlier.

Calculate the price elasticity of demand for gasoline in California.

The price elasticity of demand for gasoline in California is  nothing.

   

Answer 1

Price elasticity od demand for Gasoline= % Change in Qty/% Change in Price = 4/30 = 0.133. The demand is inelastic or near perfect inelastic.

Cross elasticity for Yaris = % change in qty demanded for Yaris/% Change in price of gasoline = 46/30 = 1.533

Cross elasticity for Focus= % change in qty demanded for Focus/% Change in price of gasoline = 32/30 = 1.067

Cross elasticity for Tahoe= % change in qty demanded for Tahoe/% Change in price of gasoline = -35/30 = -1.167

Cross elasticity for F series= % change in qty demanded for F series/% Change in price of gasoline = -27/30 = -0.9