Question

The price elasticity of demand for petrol used by car drivers in an economy is estimated to be -0.2
Which of the following is the likely reason for the low PED?
- a tax on petrol
- cycle lanes on many roads
- few bus and rail services
- low household incomes

Answer 1

- few bus and rail services
Low PED is caused by the absence (or lack) of the substitute goods. Bus and rail services are
the substitutes of driving.