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Suppose the price elasticity of demand for gasoline is -0.4. If an embargo reduces the quantity...

Suppose the price elasticity of demand for gasoline is -0.4. If an embargo reduces the quantity of available gasoline by 30%, by what percent would you expect the price to rise? Show your work.

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Answer #1

Answer
price elasticity of demand =(%change in quantity/%chage in price)
using given values
-0.4=(-30/ %change in price) ........ the - sign shows reduction in the quantity
%change in price =(-30/(-0.4)
=75
the price will increase by 75%

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