Relationship between consumers and gas station owners change

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Studies have fixed the short run price elasticity of demand for gasoline at the pump at -.20. Suppose the international hostilities lead to a sudden cutoff of crude oil supplies. As a result, US supplies of refined gas drop 10 percent. a. If gasoline were selling for $2.60 per gallon before the cutoff, how much of a price increase would you expect to see in the coming months? b. suppose that the government imposes a price ceiling on gas at $2.60per gallon. How would the relationship between consumers and gas station owners change?

Reference no: EM13887787

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