The Price Elasticity Of Demand

764 Words May 19th, 2015 4 Pages
In January 2008, gasoline prices were $3 a gallon with an increase of 33 percent price of gasoline was $4 a gallon in June 2008. Between the January and June 2008 time period the quantity of gasoline purchased decreased by 3 percent. After gathering the required information, the second step is to calculate the price elasticity of demand (PEoD) for gasoline is to calculate the percentage change in price which is done by using the following formula. [Price New-Price Old] / Price Old. The numbers plugged into the equation is [4-3] / 3=.3333 or 33 percent. The percentage change in price equals 33 percent. The third step is to calculate the percentage change in quantity demanded. This is done by using the following equation [Demand New-Demand Old] / Demand Old. The information provided above states that the percent change in quantity demand is 3 percent, which means that there is not a need to calculate the percent change in quantity demand. The final step of calculating the price elasticity of demand is done by completing the following formula of PEoD = (% Change in Quantity Demanded) / (% Change in Price). When the numbers are plugged into the equation it is 3% / 33% =.0909 or 9 percent. The price elasticity of demand for gasoline is 9 percent. The price increase of gasoline will impact the consumer and producer surplus. The area between the demand curve and the price line for the quantity of gasoline sold provides the consumer surplus. The consumer surplus decreases when the…

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