Recent Research Estimates That the Short-Run Price Elasticity of Demand

question 89

Multiple Choice

Recent research estimates that the short-run price elasticity of demand for gasoline in the U.S. is -0.3, and the long-run price elasticity of demand is -1.4. What happens if the government increases the federal gasoline tax?

• A) Consumer expenditures on gasoline increase over the short run and long run.
• B) Consumer expenditures on gasoline decline over the short run and increase over the long run.
• C) Consumer expenditures on gasoline increase over the short run and decline over the long run.
• D) Consumer expenditures on gasoline decrease over the short run and long run.

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Definitions:

Rawlsian

Pertaining to the philosophical ideas of John Rawls, especially his theory of justice which emphasizes fairness and the "veil of ignorance" principle in ethical decision making.

Utilitarian

A philosophical theory that suggests an action is right if it leads to the greatest happiness for the greatest number of people.

Paternalism

The practice or policy of limiting someone's freedom or making decisions for them in their supposed best interest.