Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 5 - Part II - Elasticity and its Application - Problems and Applications - Page 109: 9

Answer

Walt's price elasticity is 0. Jessie's price elasticity is 1.

Work Step by Step

Walt asked for a set amount of gas, meaning Walt would spend any amount (and not have a change in quantity). Since there would not be a change in quantity, the numerator in the price elasticity of demand formula (and the elasticity itself) is 0. Jessie asked for a set dollar amount of gas. Let's say gas is 2.50 per gallon, so Jessie would get 4 gallons of gas. However, if the price increases by 20% (to 3 dollars per gallon), Jessie would get 3.33 gallons of gas (which is 20% less than 4). Thus, Jessie's price elasticity of demand is 1.
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