The price elasticity of demand for gasoline in the long run has been estimated to be -1.5.If an extended war in the Middle-East caused the price of oil (from which gasoline is made) to increase and remain high for a decade, how would that affect total expenditures on gasoline in the long run, all other things unchanged?
A) total expenditures would rise
B) total expenditures would fall
C) total expenditures would remain unchanged
D) not enough information is given to answer the question

Question

Quizplus · Accepted Answer

Since the price elasticity of demand is -1.5, which is elastic, an increase in price will lead to a proportionally larger decrease in quantity demanded, causing total expenditures to fall.

The Price Elasticity of Demand for Gasoline in the Long