Question
According to a report from the Federal Trade Commission (FTC), in the first three weeks of August 2003, gas prices in Phoenix, Arizona, jumped from
According to a report from the Federal Trade Commission (FTC), in the first three weeks of August 2003, gas prices in Phoenix, Arizona, jumped from $1.52 to $2.11 a gallon, roughly a 40% increase, due to a ruptured pipeline between Tucson and Phoe nix. The pipeline normally brought 30% of Phoenix's fuel from a Texas refinery. During this period, Phoenix gas stations were able to buy gas from West Coast refineries at higher prices. By the end of the month, the rupture was repaired and prices returned to normal. During this three-week period of supply disruption, gasoline sales fell by 8%. What was the approximate price elasticity of demand for gasoline during this period? If the gas stations were unable to get additional gas from the West Coast and supplies fell by the full 30%, how high might have prices risen during that three-week period?
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