The demand curve for gasoline is P = 300 – 10*Q.
Find the elasticity of demand for a quantity of 12. Does this number imply that quantity demanded is sensitive to price changes or insensitive?
Suppose the current market clearing quantity sold is 12. The government is considering implementing an increase in the gas tax on each unit of gasoline to raise additional revenue. Assume that any change in the tax is passed on entirely to consumers in higher gas prices. Is an increase in the gas tax justified on the basis of raising revenues?