The government is thinking about increasing the gasoline tax to promote conservation. The tax will discourage the consumption of gasoline by the greatest extent when the price elasticity of demand equals

Question

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The price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good. A higher elasticity (greater than 1) indicates that consumers are more responsive to price changes, meaning a small increase in price leads to a large decrease in quantity demanded. Therefore, with an elasticity of 2.0, the demand for gasoline would decrease the most in response to a tax increase.

The Government Is Thinking About Increasing the Gasoline Tax to Promote