Why the tepid response to higher gasoline prices?
Most studies report that when U.S. gas prices rise by 10 percent, the quantity purchased falls by 1 to 2 percent. In September 2005, the retail gasoline price was $2.90 a gallon, about $1.00 higher than in September 2004, but purchases of gasoline fell by only 3.5 percent.
Source:The New York Times, October 13, 2005
5.1. (2 points) Calculate the price elasticity of demand for gasoline implied by what most studies have found.
5.2. (2 points) Compare the elasticity implied by the data for the period from September 2004 to September 2005 with that implied by most studies. What might explain the difference?
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