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    Price Elasticity of Demand for Energy Prices

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    What do you think is the price elasticity of demand for gas and energy prices in general? What role do expectations play concerning energy prices? How about consumer sentiment going forward and its effects on retail sales and general economic transactions? Will this phenomenon affect the upcoming presidential election? How so? What will rising energy prices do to the marginal cost of production? What will this change in marginal cost of production do to output, employment, GDP? Is there a role for the government to play with respect to energy prices?

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    The price elasticity is very small. Approximately 2-3% is all on a 10% rise in gasoline prices. This seems low, but the reality is, people are not going to stop driving to work, stop going to the store, the park, etc. They are not going to quit their jobs. Most people will just start combining trips, creating carpools, and spend less on groceries and luxury items, especially travel. During the last upswing in gas prices, people started having staycations as opposed to vacations. At this point, people expect the government and the oil and gas companies to reap huge benefits from the upswing in pricing, though they have been more conscious of the commodities and traders who can inflate prices.

    The consumers expect gas prices to rise, and when the prices come down, to not return to previous low price. This means each rise will then create a higher price on the next price increase or run up. The businesses most at risk are those that are not absolute needs. Even a ...

    Solution Summary

    Price elasticity of demand for energy prices are determined in the solution.