Recent research estimates that the short-run price elasticity of demand for gasoline in the U.S. is -0.3, and the long-run price elasticity of demand is -1.4. What happens if the government increases the federal gasoline tax?

Question

Quizplus · Accepted Answer

The short-run price elasticity of demand for gasoline is inelastic (-0.3), meaning consumers will not significantly reduce their gasoline purchases when prices increase, leading to higher expenditures. In the long run, the demand is elastic (-1.4), meaning consumers will significantly reduce their gasoline purchases in response to price increases, leading to lower expenditures.

Recent Research Estimates That the Short-Run Price Elasticity of Demand