Price Elasticity of Gasoline

Price Elasticity of Gasoline

Introduction

Microeconomics is a branch of economics, which includes the study of the behavior of the firms for distribution of the limited resources and also the behavior of the people and their families. Microeconomics is related to the markets where services and goods are bought and sold. It determines the behaviors and the decisions which directly affect the demand and supply of the services and goods. It also examines the prices and effects of prices on the quantity demanded and quantity supplied of the different services and goods. Microeconomics is different from the macroeconomics. It also deals with the national economic strategies effects on the different characteristics of the economy. Microeconomics is also used for the analysis of the market system, established comparative prices between allocation of limited resources, services and goods among the different substitute uses. It also examines the failure of the market. Price elasticity is also one of the major areas in macro economics.

Discussion

Elasticity means the percentage in the quantity supplied and quantity demanded divided by the percentage change in the concerned variables. This general ratio is also known as the elasticity coefficient. Whereas, price elasticity is the percentage change in the quantity supplied and quantity demanded divided by the percentage change in the price. It can be described by the formula:

In this formula, price elasticity is denoted with Ep, percentage change in quantity is denoted with %?Q and percentage change in price is denoted with the %?P.

The article selected for this paper is “Demand for Gasoline Is More Price-Inelastic than Commonly Thought”.

Summary Analysis

Estimation of Price elasticity of gasoline is very important for government policies about the most favorable taxation, energy protection and weather change. For instance if the demand of the gasoline is highly price inelastic; then for reduction of the ...