Question

14) Suppose you are advising the government on changes in the gasoline market. The current price is $1.00 per litre and the quantity demanded is 2.5 million litres per day. Short-run price elasticity of demand is constant at 0.3. If the supply of gasoline is reduced so that the price rises to $1.50 per litre, then quantity demanded is predicted to fall in the short run by A) 15%, and total expenditure will rise. B) 15%, and total expenditure will fall. C) 50%, and total expenditure will fall, D) 12%, and total expenditure will rise. E) 13.3%, and total expenditure will rise.