Gas prices rose by $12 \%$ following a hurricane in the Gulf of Mexico. As a result, the amount of gas purchased in the week fell by $3 \%$ following the price increase.

What is the price elasticity of demand for gas in the week following the price increase?

Choose 1 answer:
(A) 2.5
(B) 0.25
(C) 4
(D) 0.5
(E) -0.75

Question

Gas prices rose by $12 \%$ following a hurricane in the Gulf of Mexico. As a result, the amount of gas purchased in the week fell by $3 \%$ following the price increase.

What is the price elasticity of demand for gas in the week following the price increase?

Choose 1 answer:
(A) 2.5
(B) 0.25
(C) 4
(D) 0.5
(E) -0.75

Accepted Answer

∻Solution∻ ‖ a ⋮ Price Elasticity of Demand Formula: The price elasticity of demand (PED) is calculated using the formula $PED = \frac{\% ext{ change in quantity demanded}}{\% ext{ change in price}}$. ‖ ‖ b ⋮ Applying the Formula: Given that the gas prices rose by $12\%$ and the quantity demanded fell by $3\%$, we use the formula to calculate PED as $PED = \frac{-3\%}{12\%}$. ‖ ‖ c ⋮ Calculation: Simplifying the expression from step b, we get $PED = \frac{-3}{12} = -0.25$. ‖ ∻Answer∻ ⚹ (B) 0.25 ⚹ ∻Key Concept∻ ⚹ Price Elasticity of Demand ⚹ ∻Explanation∻ ⚹ The price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good, with a negative sign indicating the inverse relationship between price and quantity demanded. ⚹◊What is the formula to calculate price elasticity of demand in economics?⍭ Generate me a similar question◊

Sia