Final Answer-Explanation:
The national gas oil distributor is planning to increase its price by 4%, while income is expected to increase by 11%. If the price elasticity of demand is 1.5 and the income elasticity of demand is +0.6, then we would expect a decrease in quantity demanded. This is because the price elasticity of demand is greater than 1, which means that demand is elastic. This means that a small increase in price will lead to a large decrease in quantity demanded. The income elasticity of demand is also positive, which means that demand is income elastic. This means that an increase in income will lead to an increase in quantity demanded. However, the price elasticity of demand is much greater than the income elasticity of demand, so the decrease in quantity demanded due to the price increase will be larger than the increase in quantity demanded due to the increase in income. Therefore, we would expect a decrease in total quantity demanded.
The price elasticity of demand is a measure of how responsive consumers are to changes in price. A price elasticity of demand of 1.5 means that if the price of gas oil increases by 1%, then the quantity demanded will decrease by 1.5%. This is a relatively elastic demand, which means that consumers are very responsive to changes in price.
The income elasticity of demand is a measure of how responsive consumers are to changes in income. An income elasticity of demand of +0.6 means that if income increases by 1%, then the quantity demanded of gas oil will increase by 0.6%. This is a relatively inelastic demand, which means that consumers are not very responsive to changes in income.
In this case, the price elasticity of demand is much greater than the income elasticity of demand. This means that the decrease in quantity demanded due to the price increase will be larger than the increase in quantity demanded due to the increase in income. Therefore, we would expect a decrease in total quantity demanded.
