ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -what makes the demand inelastic for gasoline? There are many reasons that can make demand for a good inelastic. With gasoline, there are few substitute goods–a good that, if consumed, can reduce the consumption of another good.

Detailed explanation-2: -Gasoline is a relatively inelastic product, meaning changes in prices have little influence on demand. Price elasticity measures the responsiveness of demand to changes in price.

Detailed explanation-3: -When demand is price inelastic, a given percentage change in price results in a smaller percentage change in quantity demanded. That implies that total revenue will move in the direction of the price change: an increase in price will increase total revenue, and a reduction in price will reduce it.

Detailed explanation-4: -When gasoline prices increase, the amount a consumer is willing to pay for a more fuel-efficient vehicle should increase. In fact, there is evidence that when gasoline prices increase, demand for less fuel-efficient vehicles falls, as consumers demand higher fuel economy to reduce the cost of driving.