If the price of gasoline in this country were expected to rise dueto a permanent increase in the tax on gasoline, which of thefollowing would you expect to happen?
A)The demand for gasoline would become more elastic.(True Answer )Correct
B)The demand for gasoline would decrease as a result of the higher price.
C)Producers will have less of an incentive to supply gasoline as a result of the higher taxes.
D)The elasticity of demand will not change since gasoline is a necessity good.

Question

Quizplus · Accepted Answer

When the price of a good increases, consumers tend to look for alternative options or substitute goods. This leads to increased sensitivity to price changes (elasticity) and a longer-term reduction in demand. Therefore, if the tax on gasoline permanently increases, consumers are likely to become more sensitive to price changes and seek alternatives, reducing their demand for gasoline. This increased elasticity of demand is likely to be reflected in a change in the shape of the demand curve for gasoline.

If the Price of Gasoline in This Country Were Expected