Question

Suppose the current price of gasoline at the pump is $4 per gallon and that 1 million gallons are sold per day. A politician proposes to add a $1 tax to the price of a gallon of gasoline. She says the tax will generate $1 million in tax revenues per day ( 1 million gallons×$1 per gallon=$1 million ). In this situation, the politician is assuming that the demand for gasoline is:

Answer 1

Answer: Perfectly inelastic demand

Explanation:

Perfectly inelastic demand is a type of demand where the quantity demanded for a good or service does not respond to price.

The implication in a perfectly inelastic demand is that the price does not matter as the consumer would purchase the same quantity of a good or service at every price. A nearly perfect example of perfect inelastic demand demand is a life saving drug.