Question

Six months​ ago, the price of gasoline was​ $2.20 per gallon.​ Now, the price is​ $2.40 per gallon. In response to this price​ increase, the number of gallons of gasoline purchased has declined by 2 percent. Based on this​ information, what is the absolute price elasticity of demand for​ gasoline?

Answer 1

Answer:

4.545

Explanation:

Given:

Six months​ ago, the price of gasoline was​ $2.20 per gallon.

Now, the price is​ $2.40 per gallon.

In response to this price​ increase, the number of gallons of gasoline purchased has declined by 2 percent.

Question asked:

Based on this​ information, what is the absolute price elasticity of demand for​ gasoline?

Solution:

As we know:

Price elasticity of demand = $\frac{\% change\ in\ quantity\ demanded}{\% change\ in\ price}$

$\% change\ in\ quantity\ demanded =$ $\frac{new\ value-old \ value}{old\ value} \times100$

                                                  $=\frac{2.40-2.20}{2.20} \times100\\\\ =\frac{0.2}{2.20} \times100\\ \\ =\frac{20}{2.20} \\ \\ =9.09$

$\% change\ in\ price=2$  ( given)

Price elasticity of demand = $\frac{\% change\ in\ quantity\ demanded}{\% change\ in\ price}$

                                           $=\frac{9.09}{2} \\ \\ =4.545$

Thus, the absolute price elasticity of demand for​ gasoline is 4.545