Step 1 Analyze gasoline price hike statistics in the following scenario. In June 2008, the U.S. retail gas price jumped from $3 to $4 a gallon. This is a 33% increase in price from January 2008....

Step 1

Analyze gasoline price hike statistics in the following scenario.

In June 2008, the U.S. retail gas price jumped from $3 to $4 a gallon.

• This is a 33% increase in price from January 2008.


• During that time, the total quantity of gasoline purchased fell by 3%.


• Supplies of gasoline produced also decreased from 1 million barrels to 800,000 barrels.


• No viable substitute has been created to replace gasoline.

Step 2

Calculate the price elasticity of gasoline Be sure to show all work.

• Calculate the price elasticity of demand for gasoline.


• Calculate the elasticity of supply using the information provided.


• Calculate the changes in consumer and producer surplus.


• Because there is no viable substitute for gasoline at this time, what can you say about the cross-elasticity and income elasticity of supply and demand for gasoline?


• Is the demand for gasoline elastic, inelastic, perfectly elastic or inelastic, or unit elastic?

Use the following as a guide for your calculation

• To show your work, clearly identify each step in your problem-solving process demonstrating your progress at each stage.


• Clearly identify your final answer.