A Drop in the Price of Gasoline from $1

question 38

Multiple Choice

A drop in the price of gasoline from $1.75 to $1.25 per litre causes purchases of cars to rise from 20 000 to 40 000.The numerical value of the cross-price elasticity between these two goods is therefore:

• A)-1.0
• B)-2.0
• C)2.0
• D)0.5
• E)-0.5

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Definitions:

Diminishing Marginal Utility

Diminishing marginal utility is an economic principle stating that as a person consumes more of a good or service, the satisfaction (utility) gained from each additional unit decreases.

Satisfaction

The feeling of pleasure or contentment arising from meeting one's needs, desires, or expectations.

Utility

A measure of satisfaction or benefit that a consumer receives from consuming goods and services.

Consumer Derives

The satisfaction or utility that a consumer obtains from the consumption of goods and services.