The Cross Price Elasticity of Demand for Fuel with Respect

question 105

Multiple Choice

The cross price elasticity of demand for fuel with respect to the price of transport (e.g., automobile travel including insurance, etc.) has been estimated to be -0.48.If the price of transport increases by 5 percent in a period, how will that affect the demand for fuel in that period, all other things unchanged?

• A) The demand for fuel will increase by 2.4 percent.
• B) The demand for fuel will increase by 5 percent.
• C) The demand for fuel will not change because many people prefer to ride the subway.
• D) The demand for fuel will fall.

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