Calculating price elasticity of demand

Calculate the price elasticity of demand and understand its effects on price changes.
Deliverables
A one- to two-page (250–500-word) paper with calculations
Step 1
Analyze gasoline price hike statistics in the following scenario.
In June 2008, the U.S. retail gas price jumped from $3 to $4 a gallon.
• This is a 33% increase in price from January 2008.
• During that time, the total quantity of gasoline purchased fell by 3%.
• Supplies of gasoline produced also decreased from 1 million barrels to 800,000 barrels.
• No viable substitute has been created to replace gasoline.
Step 2
Calculate the price elasticity of gasoline.
In a one- to two-page (250–500-word) paper, address the following. Be sure to show all work.
• Calculate the price elasticity of demand for gasoline.
• Calculate the elasticity of supply using the information provided.
• Calculate the changes in consumer and producer surplus.
• Because there is no viable substitute for gasoline at this time, what can you say about the cross-elasticity and income elasticity of supply and demand for gasoline?
• Is the demand for gasoline elastic, inelastic, perfectly elastic or inelastic, or unit elastic?
Use the following as a guide for your calculations:
• Use Microsoft Equation Editor or a similar tool to help you insert mathematical equations and symbols in your response. For further assistance, download the Microsoft Equation Editor Information.
• To show your work, clearly identify each step in your problem-solving process demonstrating your progress at each stage.
• Clearly identify your final answer.