What is the relationship between gasoline prices and elastic

What is the relationship between gasoline prices and elasticity? Use sources and economic reasoning to explain.

Solution

Answer- Elasticity is referred to the responsiveness of one economic variable due to change in another economic variable.

Price elasticity of demand is referred to the responsiveness to the quantity demand due to change in the price. It is supply and demand, short run and long run.

Price elasticity of demand for gas refers to a hypothetical situation because if gas prices rise it will decrease the consumption.It depends on the time framing of demand.

In near term the month after the gas price changes the price elasticity of demand is somewhere around 0.25%. Probably 1 % of increase in price the demand falls by 0.25%

In long term or long run 1 % of increase in price the demand falls by 0.6%

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