The price elasticity of demand for gasoline in the short run has been estimated to be 0.4.If a war in the Middle East causes the price of oil (from which gasoline is made) to increase,how will that affect total revenue from gasoline in the short run,all other things unchanged?

A) Quantity demanded will stay the same;total revenue will fall.
B) Quantity demanded will decrease;total revenue will rise.
C) Total revenue will remain unchanged.
D) Quantity demanded will not change;total revenue will rise.

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Anthony Fryer · Accepted Answer

Final Answer : B, Explanation :  The price elasticity of demand for gasoline being 0.4 indicates that the demand for gasoline is inelastic in the short run. This means that a price increase will lead to a smaller percentage decrease in quantity demanded. Therefore, total revenue (price x quantity) will rise because the effect of the price increase on revenue is greater than the effect of the decrease in quantity demanded.

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