Two drivers, Walt and Jessie, each drive up to a gas station. Before looking at the price, each places an order. Walt says, “I’d like 8 gallons of gas.” Jessie says, “I’d like $8 worth of gas.” What is each driver’s price elasticity of demand?
None
To calculate the price elasticity of demand for each driver, we need to use the formula:
Price Elasticity of Demand = (% Change in Quantity Demanded) / (% Change in Price)
First, let's find the percentage change in quantity demanded for each driver.
For Walt:
The quantity demanded for Walt is 8 gallons.
So, if the price changes, and the quantity demanded remains the same (8 gallons), the percentage change in quantity demanded is 0%. Therefore, Walt's percentage change in quantity demanded is 0%.
For Jessie:
The dollar amount of gas demanded by Jessie is $8.
We need to find the corresponding quantity of gas at different prices to calculate the percentage change in quantity demanded. For this calculation, we need to know the price per gallon of gas.
Once we have the price per gallon of gas, we can find the quantity demanded by dividing $8 by the price per gallon.
For example, if the price per gallon is $2:
Quantity demanded for Jessie = $8 / $2 = 4 gallons
Now, let's assume multiple price scenarios to find the percentage change in quantity demanded for Jessie.
If the price per gallon is $2:
Percentage change in quantity demanded = (4 - 8) / 8 * 100% = -50%
If the price per gallon is $3:
Percentage change in quantity demanded = (8 - 8) / 8 * 100% = 0%
If the price per gallon is $1:
Percentage change in quantity demanded = (12 - 8) / 8 * 100% = +50%
Now that we have the percentage change in quantity demanded for various price scenarios, we can calculate the price elasticity of demand for each driver.
For Walt:
Price Elasticity of Demand = 0% / (% Change in Price)
Since Walt's quantity demanded remains constant, the price elasticity of demand for Walt will always be zero.
For Jessie:
Price Elasticity of Demand = (% Change in Quantity Demanded) / (% Change in Price)
We can calculate the price elasticity of demand for Jessie by considering different price scenarios and the corresponding percentage change in quantity demanded.
For example, let's use the scenario where the price per gallon is $2:
Price Elasticity of Demand = -50% / (% Change in Price) = -50% / (%2) = -25%
Similarly, we can calculate the price elasticity of demand for Jessie for the other price scenarios.
Thus, based on the given information and using the above calculations, the price elasticity of demand for Walt is zero, and the price elasticity of demand for Jessie varies depending on the price per gallon.