Question

Suppose the own price elasticity of market demand for retail gasoline is -0.9, the Rothschild index is 0.6, and a typical gasoline retailer enjoys sales of $1,450,000 annually. What is the price elasticity of demand for a representative gasoline retailer's product?

Answer 1

Answer:

-1.5

Explanation:

Given the following :

Rothschild index = 0.6

Elasticity of demand for total market = - 0.9

Annual sale = $1,450,000

Elasticity of demand for a representative retailer's product :

Using the Rothschild demand Elasticity relation:

Rothschild index = (Elasticity of demand for total market / Elasticity of demand for a representative retailer's product

0.6 = - 0.9 / Elasticity of demand for a representative retailer's product

Elasticity of demand for a representative retailer's product = - 0.9 / 0.6

= - 1.5