560 Miller Economics Today, Nineteenth Edition
Chapter 19 Demand and Supply Elasticity
Higher Gasoline Prices and Hybrid Car Demand
In the summer of 2008, the price of gasoline increased to a little more than $4.00 per gallon. Americans
did not drive appreciably less for the few months that this price increase held. They also did not rush out
and buy a large number of gasoline-electric hybrids, such as the Honda Civic hybrid. This hybrid is
advertised as getting about 50 miles per gallon in city driving as compared to the standard Honda Civic
Prices of Homes in California Plunge in the Late 2000s
A major consequence of the housing market crisis has been a significant decline in home prices as
foreclosures intensified between 2007 and 2008. One of the hardest states hit was California. The median
price of a new home in California decreased by 35.3 percent from August 2007 to August 2008.
Who Pays Higher Gasoline Taxes?
Gasoline taxes are paid by sellers from the revenues they earn from their total sales. Thus to receive the
same effective price for selling a given quantity of gasoline, a gasoline producer must charge an actual
price that is higher by exactly the amount of the tax. Sellers supply a given quantity of gasoline, but at a
price that is higher by the amount of the tax that they have to pay to the government.
Lecture Extender Examples 561
Price Elasticity of Demand for Gasoline
During the week following Hurricane Katrina in September 2005, the nationwide price of gasoline rose
from $2.61 to $3.07 per gallon. The total quantity of gasoline consumed in the United States declined
from 9.42 million gallons to 9.04 million gallons.
The Price Elasticity of Demand for Tourist Visas
Until November 2002, citizens of developing nations who wanted to visit the United States on a
In 1998, John Tauras of the University of Illinois at Chicago and Michael Grossman of the City
University of New York conducted a study of teen use of cocaine. They found that compared to adults,
youthful drug abusers are three times more sensitive to price changes. Whereas adult cocaine demand is
A Pricing Decision at Disneyland Paris
Several years after it opened, the $4 billion investment in Disneyland Paris was in trouble. In an attempt
to reduce losses and hoping to make a profit, Disney management decided to lower prices. Entrance fees