At the beginning of this year, daily consumption of gasoline in the US amounted to 344 million gallons. It is estimated that for every 10%10% increase in the price of gasoline, quantity demanded falls by 2.0%. By the end of this year, the price of gasoline is expected to increase by 40 cents from $3.103.10 per gallon. Based on this information, what is the expected quantity demanded (QD) for gasoline at the end of this year? Please specify your answer to one decimal place.
At the beginning of this year, daily consumption of gasoline in the US amounted to 344 million gallons. It is estimated that for every 10%10% increase in the price of gasoline, quantity demanded falls by 2.0%. By the end of this year, the price of gasoline is expected to increase by 40 cents from $3.103.10 per gallon.
Based on this information, what is the expected quantity demanded (QD) for gasoline at the end of this year? Please specify your answer to one decimal place.
Expected percentage increase in price
Expected percentage increase in price=Expected increase in price/Current price*100
Expected percentage increase in price=0.40/3.10=12.9%
For every 10% increase in the price of gasoline, the quantity demanded decreases by2%
For every 1% increase in the price of gasoline, the quantity demanded decreases by 0.2%
For every 12.9% increase in the price of gasoline, the quantity demanded decreases by 2.58%(0.2*12.9)
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