The average price of gasoline in June of 2008 in the United ...

[olgavictoria]

The average price of gasoline in June of 2008 in the United States was 3.79 . This was up by 82 cents from the previous year. Forecasters are expecting a drop in gasoline consumption of about 1 for the first time in 16 years.
 
  Even though this is a historic moment what do the figures still demonstrate about the elasticity of demand for gasoline? If the price increases go unabated what is likely to happen to the long-run price elasticity for gasoline and why?

Question 2

Which of the following will increase investment spending in the economy, holding everything else constant?
 
  A) an increase in the federal government surplus B) an increase in transfer payments
  C) an increase in the budget deficit D) an increase in consumer dissavings

[kalskdjl1212]

Answer to Question 1

The increase in the price in percentage terms is about 26. A drop in consumption of only 1 still implies that gasoline is price inelastic. If prices for gasoline continue to rise unabated it is very likely that in the long run people will gradually flock to alternative forms of fuel or transportation. Economy cars will become more popular, more people will turn to mass transit and still others may car pool, bike or walk to work where feasible.

Answer to Question 2

A