You Are a Staunch Environmentalist

question 25

Multiple Choice

You are a staunch environmentalist. When hybrid vehicles were introduced, the supply was very limited. Buyers were paying a premium over the listed manufacturer's suggested retail price (MSRP) . At that time, your budget could not stretch that far, but you still wanted to own a car that does not depend on petroleum products. By waiting, you find that the automobile dealers have announced that their shipments of new hybrid cars have increased by 10 percent. Meanwhile, the average price of regular gasoline rose from $3.30 to $3.63 per gallon. ​
​Required:
If the price elasticity of demand for new hybrid cars is 1.25 and for gasoline is 1.0, what was the effect on the prices of a new hybrid car and on gasoline?

• A) ​The price of the hybrid car fell by 2.5 percent and the price of gasoline increased by 1.1 percent.
• B) ​The price of the hybrid car rose by 12.5 percent and the price of gasoline increased by 11.1 percent.
• C) ​The price of the hybrid car fell by 10 percent as did the price of gasoline.
• D) ​The price of the hybrid car rose by 8 percent, and the price of gasoline increased by 10 percent.
• E) ​The price of the hybrid car fell by 8 percent, and the price of gasoline increased by 10 percent.

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