Suppose You Are Advising the Government on Changes in the Gasoline

question 60

Multiple Choice

Suppose you are advising the government on changes in the gasoline market. The current price is
$1.00 per litre and the quantity demanded is 2.5 million litres per day. Long- run price elasticity of demand is constant at 0.8. If the supply of gasoline is reduced so that the price rises to $1.50 per litre, then quantity demanded is predicted to fall in the long run by

• A) 32 percent, and total expenditure will rise.
• B) 50 percent, and total expenditure will rise.
• C) 15 percent, and total expenditure will fall.
• D) 15 percent, and total expenditure will rise.
• E) 12 percent, and total expenditure will fall.

---

Definitions:

Average Annual Return

The arithmetic mean percentage of gain or loss on an investment per year over a given period.

Taxes and Fees

Compulsory charges imposed by government entities or regulatory bodies on business transactions, goods, and services.

Government Agency

An organization under the government that is responsible for the specific area of administration or function according to law.

Simple Payback

A financial metric that calculates the time required to recoup the initial investment in a project or asset through cash inflows or savings.