The price elasticity of demand for gasoline in the short run has been estimated to be -0.1.If a war in the Middle East causes the price of oil (from which gasoline is made) to increase, how will that affect total expenditures on gasoline in the short run, all other things unchanged?
A) demand will stay the same, but total expenditures will fall
B) demand will decrease, but total expenditures will rise
C) total expenditures will remain unchanged
D) demand will not change, but total expenditures will rise

Question

Quizplus · Accepted Answer

Inelastic demand (elasticity of -0.1) means quantity demanded changes little with price changes. Thus, when price rises, total expenditures increase because the percentage increase in price is greater than the percentage decrease in quantity demanded.

The Price Elasticity of Demand for Gasoline in the Short