Answer:
The correct answer is option a.
Explanation:
The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%.
The price elasticity of demand measures the change in quantity demanded due to a change in price. It is the ratio of the percentage change in the quantity demanded and percentage change in price.
Price elasticity of demand
= [tex]\frac{\% \Delta Q}{\% \Delta P}[/tex]
= [tex]\frac{1}{5}[/tex]
= 0.2
The price elasticity is lower than one. This implies that the demand for gasoline is relatively price inelastic.
The price elasticity of demand is equal to 0.2 and demand is described as inelastic
The price elasticity of demand measures the changes in quantity demanded due to a change in price.
Given Information
Price of gasoline rises 5%
Quantity of gasoline purchased falls 1%.
Price elasticity of demand = % Change in QD / % Change in Price
Price elasticity of demand = 1% / 5%
Price elasticity of demand = 0.2
Since the is Price elasticity of demand lower than one, the demand for the gasoline is inelastic.
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