Recall the Application about how changes in supply affect the price of gasoline to answer the following question(s).
-Recall the Application.Suppose the price elasticity of demand for gasoline is 0.20 and the price elasticity of supply for gasoline is 0.55.If supply increases by 40 percent,the equilibrium price will decrease by
A) 54 percent.
B) 72 percent.
C) 114 percent.
D) 188 percent.

Question

Quizplus · Accepted Answer

The percentage change in equilibrium price can be calculated using the formula: %ΔP = %ΔS / (Ed + Es), where %ΔS is the percentage change in supply, Ed is the price elasticity of demand, and Es is the price elasticity of supply. Substituting the given values: %ΔP = 40% / (0.20 + 0.55) = 40% / 0.75 = 53.33%, which rounds to 54%.

Recall the Application About How Changes in Supply Affect the Price