Question

9. Price elasticity of demand for gasoline is likely to be lower for the CEO of Exxon Mobil Oil company than for a gas station attendant because, most likely:

C. CEO of the oil company owns several cars while the attendant just has one.

D. CEO drives a hybrid car while the gas station attendant drives a Hummer.

E. The monthly cost of gasoline in the CEOs budget is minute while it is a significant part of the attendants income.

F. none of the above.

Answer 1

Option

E. The monthly cost of gasoline in the CEOs budget is minute while it is a significant part of the attendant's income.

A portion of budget spend, and elasticity of demand is positively related if a lower potion is spent then that has less elastic demand means an increase in price will not change much consumption as the person can afford to pay for it. If a higher income is spent on the good, then the good is elastic because the increase in price changes consumption as the person does not afford to pay for it.