Need help with Macro question!
Consider the market for gasoline. Because there are very few good substitutes for gasoline, the demand for gasoline is probably inelastic.
a) i. If the price of gasoline rises by 10%, by what percentage is the quantity demanded likely to fall?
b) ii. Suppose the price of gasoline rises by 10% and, as a result, the quantity demanded falls by 5%. Will consumer expenditures on gasoline rise or will they fall?

Question

Need help with Macro question!
Consider the market for gasoline. Because there are very few good substitutes for gasoline, the demand for gasoline is probably inelastic.
a) i.	If the price of gasoline rises by 10%, by what percentage is the quantity demanded likely to fall?
b) ii.	Suppose the price of gasoline rises by 10% and, as a result, the quantity demanded falls by 5%. Will consumer expenditures on gasoline rise or will they fall?

anonymous · Answer

a) the quantity demanded would fall by less than 10% because the demand for gasoline is inelastic. 

b) Consumer expenditure on gasoline would fall considering that the quantity demanded fell  by 5%

minimato · Answer

Thanks! I was pretty much on the right track for question b. But I wasn't sure about question a because I thought they wanted an exact percentage of how much it fell by, and I wasn't sure how to do that. However, the way you said it makes sense!

minimato · Answer

@ArbabShah I have some more questions, if you'd be willing to help me :)

minimato · Answer

Now, consider demand for the gasoline sold by Gas Station G in a large city. The gasoline sold by other stations is an excellent substitute for the gasoline sold by Station G. Because there are many good substitutes for gasoline, its demand is probably elastic.
a) If the price at Station G rises by 10%, by what percentage is its quantity sold likely to change, other things being the same? 
b) In this case, what will happen to Station G's revenues when the price rises

minimato · Answer

I'm guessing, for a) the the quantity sold would fall by greater than 10%. For b) the revenues of Station G would fall when the price rises. Is this correct?

anonymous · Answer

Is this assuming the demand slope is straight or curve? If it's curve then you're right.

anonymous · Answer

If the price rises by 10% the quantity demanded would fall by greater than 10% because the demand is elastic hence now its more responsive as there are alternatives available.

b) the revenue would fall as well because revenue = p x q , we know the q will fall hence the equation proves it too that total revenue will fall as a result too. 

sorry for the late reply though :)