Estimates of the long-run response to past movements in gasoline prices imply that a 10 percent price rise causes 5 to 10 percent less consumption, other things being equal. The nationwide average price of gasoline surged 53 percent from 1998 to 2004, after adjusting for inflation. Yet consumption was up 10 percent in this period.

Of course, many other things changed in this period. Perhaps most important, [incomes] grew by 19 percent. This would ordinarily be expected to push gasoline sales up about 20 percent.

The New York

Times,

October 13, 2005

What is price elasticity of demand for gasoline in the long run?

What is the income elasticity of demand for gasoline implied by the information given in the news clip?

If other things remain the same except for the increase in income and the rise in price, what does the data for 1998 to 2004 imply is the approximate value of the price elasticity of demand for gasoline?

Question content area bottom

Part 1

The price elasticity of demand for gasoline in the long run _______.

A.

ranges between 1 and 2

B.

ranges between 0.5 and 1

C.

depends on the change in income

D.

is zero. The quantity of gasoline demanded does not respond to a change in the price of gasoline

Part 2

The income elasticity of demand implied by the information given in the news clip is

enter your response here.

>>> Answer to 2 decimal places.

Part 3

If other things remain the same except for the increase in income and the rise in price, the data for 1998 to 2004 implies that the price elasticity of demand for gasoline is approximately equal to

enter your response here.