Question

4. The price elasticity of demand for gasoline is -4. Show all work. a. How much will a 10 percent reduction in the quantity placed on the market increase the price? (You can state your answer as a percentage.) b. In part a, will total spending on gasoline rise or fall? By what percentage? You can use an approximation to compute the change in total spending.

Answer 1

& Price elasticity of demand = "1D inquunity Join Price y she .)-DP = Orl = 0.025 Prices 2.5%), (3) suppose quantity (2) = 20 104 reduction in quantity (22) = 092e Price (P) an Price (Px) = 1,0254 Toted spending before change in quantity anexe Toted spending bed After change a 09211.0252 Hence, the toted spending on gasoline full, by 7.75% change in toted spending a 2²_0.9225 1² 20.077542 change in toful spending is 0.0715. 222 = 0.922526?