Rule of thumb in the gasoline industry

 

Levin. There used to be a rule of thumb in the gasoline industry that each 10 cent increase in the price of gas adds sio billion to industry revenues. We can write this rule of thumb as dTR 0.10 = 10 dp (a) Recall that TR= pQ, and assume price is fixed. Show that the derivative TA can be expressed in elasticity form as dTR = Q(1 +e) dp Prove that for inelastic demand. TR rises when prises. (b) Now suppose you also know that the market quantity of gas consumed is Q = 130. Show that you can obtain an elasticity estimate ofe= -0.23 from the rule of thumb and the deriva- tive in part (a). (c) Let the demand of a typical consumer for gas be 40p)= Amp Suppose you know that the typical consumer buys 4 = 700 gallons of gas per year at a price of p – 2.50 per gallon. You also know that the typical consumer has an income of m= 50,000, and you know the elasticity estimate from part (b). If you do a back of the envelope calculation to calibrate the demand curve, what values do you get for A and bf (d) What is the income elasticity of demand for gas? Use your de mand function from part (c) and continue to assume we are at the point p = 2.50, 4 – 700, m = 50000. Using the words normal good, necessity, and luxury, explain whether you think this is a good estimate of the income elasticity of demand for gas.

 

 

Sample Solution

When considering the history of Nola, Jackson Square plays an essential role. French colonials originally named the park Place d’Armes, translated as “weapons square”. This park served as the spot for public executions of criminals and rebellious slaves, and the heads of the hanged criminals were often placed on the city’s gates. In 1803, this park saw Louisiana made United States territory in accordance with the Louisiana Purchase. 12 years later, Place d’Armes was renamed Jackson Square, following the vital victory under Brevet Major General Andrew Jackson, in which American forces held off the city from a British attack and only suffered 70 casualties, compared to the British forces’ 2,000. Today, street artists, palm readers, and voodoo witches surround the square’s fence line, creating a lively atmosphere and unique entertainment.

30 miles southeast of the Big Easy sits Hopedale, built in between the winding channels of brackish water that serves as transportation systems for the guides and crabbers that inhabit this small town. I remember travelling to Hopedale for the first time in 6th grade and seeing the eye-opening conditions these blue-collar Louisiana natives live under. Hundreds of people lined the roads, fishing for redfish and speckled trout in the runoff trenches, not knowing that saltwater fish had no way of getting into these drainage systems, nonetheless living in them. Our group packed 12 people into two doublewide trailers, which proved to be a pain at 4:45 in the morning, with people scrambling around to find PFG shirts and Costa sunglasses before the Cajun guides left the docks. With lines in the water before daylight and fish striking lures faster than you could reel them in, we’d be worn out and ready to make the thirty-mile trek back to the docks around 3:00 in the afternoon.

Nicknamed “Sportsman’s Paradise”, the Mississippi River Delta earned its name due to the plethora of fresh and saltwater fish, oysters, shrimp, crabs, and millions of migrating waterfowl. The Mississippi River has deposited rich sediment in the warm waters of the Gulf of Mexico for thousands of years, allowing for the growth of plants, marshes, and barrier islands. This region stretches all the way across the southern coast of Louisiana, from the Vermilion Bay in southwest Louisiana to the Chandeleur Islands off the coast of Biloxi, Mississippi. The Delta is the largest drainage basin in the country, draining about 41% of the continental United Sta

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