The income elasticity of demand for gasoline is small

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Suppose Paula consumes both 87 and 89 octane gasoline. Assume that before the recent price increases, Paula paid $3.00/gallon for 87 octane and $3.10/gallon for 89 octane. The price of each grade of gasoline has now risen by exactly 65 cents. Make the argument that if the income elasticity of demand for gasoline is small, the price increase could induce Paula to consume more of the 89 octane gasoline and less of the 87 octane.

Reference no: EM131109441

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