Example
A consumer buys 20 litres of petrol when the price is €1.40 per litre. When the price increases to €1.60, as a result of an increase in carbon tax, the consumer purchases 18 litres.
- Calculate the consumer’s Price Elasticity of Demand (PED).
2. Is this demand for petrol price elastic or price inelastic?
3. Outline the implication for government revenue?
Answer

- -2/20c X (1.40 +1.60))/(20+18) =
– 0.1 x (3/38) = -0.1 x0.078 = – 0.79
- The demand for petrol is inelastic.
- An increase in the price of petrol will yield an increase in revenue for the government because the % increase in price will be greater than the percentage decrease in quantity demanded resulting in increased tax revenue for the government.

