Recall the Application about how changes in supply affect the price of gasoline to answer the following question(s).
-Recall the Application.Suppose the price elasticity of demand for gasoline is 0.20 and the price elasticity of supply for gasoline is 0.55.If supply decreases by 10 percent,the equilibrium price will increase by
A) 13.5 percent.
B) 28.5 percent.
C) 87.5 percent.
D) 187.5 percent.

Question

Quizplus · Accepted Answer

The formula for the percentage change in equilibrium price is: %ΔP = %ΔS / (Es + Ed). Here, %ΔS = -10%, Es = 0.55, and Ed = 0.20. So, %ΔP = -10% / (0.55 + 0.20) = -10% / 0.75 = -13.33%, which is approximately 13.5% increase.

Recall the Application About How Changes in Supply Affect the Price