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 equal?

A) Quantity demanded will stay the same,but total expenditures will fall.
B) Quantity demanded will decrease a massive amount,but total expenditures will rise.
C) Total expenditures will remain unchanged.
D) Quantity demanded will not change much,but total expenditures will rise.

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Yoeshean Roshan · Accepted Answer

Final Answer : D, Explanation :  With a price elasticity of demand of 0.1, it implies that a 1% increase in the price of gasoline would lead to a 0.1% decrease in quantity demanded. Therefore, when the price of oil increases, the price of gasoline would rise, and the quantity demanded would not drop significantly. As a result, total expenditures on gasoline will increase because the price effect would outweigh the quantity effect.

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