posted by Econo-missed on .
The coefficient of the price of gasoline in the regression of the quantity demanded of automobiles (in millions of units) on the price of gasoline (in dollars) and other variables is -14. (a) calculate the cross price elasticity of demand between automobiles and gasoline at the gasoline $ 1 per gallon and sales of automobiles of 8 (million units).
(b) What would be the cross price elasticity of demand between automobiles and gasoline if sales of automobiles declined from 8 to 6 with an increase in the gasoline price from $ 1 to $ 1.20 per gallon?
Take a shot, what do you think.
hint: increase the price of gas by 1%, what happens to the quantity of autos (the percentage change)