Step 1 Analyze gasoline price hike statistics in the following scenario.
In June 2008, the U.S. retail gas price jumped from $3 to $4 a gallon.
- This is a 33% increase in price from January 2008.
- During that time, the total quantity of gasoline purchased fell by 3%.
- Supplies of gasoline produced also decreased from 1 million barrels to 800,000 barrels.
- No viable substitute has been created to replace gasoline.
Step 2 Calculate the price elasticity of gasoline.
In a one- to two-page (250–500-word) paper, address the following. Be sure to show all work.
- Calculate the price elasticity of demand for gasoline.
- Calculate the elasticity of supply using the information provided.
- Calculate the changes in consumer and producer surplus.
- Because there is no viable substitute for gasoline at this time, what can you say about the cross-elasticity and income elasticity of supply and demand for gasoline?
- Is the demand for gasoline elastic, inelastic, perfectly elastic or inelastic, or unit elastic?
Use the following as a guide for your calculations:
- Use Microsoft Equation Editor or a similar tool to help you insert mathematical equations and symbols in your response. For further assistance, download theMicrosoft Equation Editor Information.
- To show your work, clearly identify each step in your problem-solving process demonstrating your progress at each stage.
- Clearly identify your final answer.
Step 3 Save and submit your assignment.
