Most Studies Show That the Price Elasticity of Demand for Gasoline

question 22

Multiple Choice

Most studies show that the price elasticity of demand for gasoline is -0.2. If the price elasticity of supply is 2, then a tax on gasoline will:

• A) have no effect on the market equilibrium price of gasoline.
• B) cause the market equilibrium price of gasoline to fall.
• C) cause the market equilibrium price paid by buyers to rise.
• D) cause the net price received by sellers to fall.
• E) both c and d

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Definitions:

Variable Cost

Costs that change in proportion to the level of goods or services that a business produces, such as materials and labor.

Total Cost

The total of all costs associated with the creation of goods or services, encompassing both constant and fluctuating expenses.

ATC

Average Total Cost, which is the total cost of production divided by the quantity of output produced, representing the per-unit cost of production.

Long Run

A period in economics during which all inputs, including capital and labor, can be varied, allowing for full adjustment to changes.