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The demand curve for gasoline is P = 200 - 10Q.
a. Find the elasticity of demand for a quantity of 8. Does this number imply that quantity demanded is sensitive to price changes or insensitive?
b. Suppose the current market clearing quantity sold is 8. The government is considering implementing an increase in the gas tax on each unit of gasoline to raise revenue. Assume that any change in the tax is passed on entirely to consumers in higher gas prices. Why, given your findings in (a), would you argue against an increase in the tax for the purposes of increasing revenue?
how to calculate it given a functuion
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Price: The price factor is another important variable to be included in demand analysis. Here one has to consider the prices of the product and also its substitute and complement
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