Question

Assume the price elasticity of demand (Ed) is 0.4 for gasoline in the long run. Some argue that we need a 50% reduction in gasoline consumption to be sustainable. What percentage price increase would reach that goal of 50% reduction in consumption

Answer 1

125%

Step-by-step explanation:

Price elasticity of demand measures the responsiveness of quantity demanded to changes in price of the good.

Price elasticity of demand = percentage change in quantity demanded / percentage change in price

Let x = percentage change in price

o.4 = 50 / x

x = 125