Question-

a) You are asked to compare and contrast the estimated price elasticity of demand for fuel in two different countries, say the US and the UK. To do so, you have been given the following information.

* Fuel taxes are about 8 times higher in the UK than the US resulting in prices that are 3 times higher.

* UK Vehicles are twice as fuel efficient.

* Automobiles are driven about 20% less per year in the UK

* And per capita vehicle ownership is lower by almost 20% in the UK.

i) How relevant are these information and how will you use them?

ii) In light of the above information, what can you say about the price elasticity of automobiles?

b)  "The relatively low price elasticity of driving with respect to fuel prices hides a much higher overall price elasticity of driving" Why? Discuss what is meant by overall price elasticity and how it is different from fuel price elasticity.

c) Some studies have found that a motorist, for example, could be expected to respond to 2.25 times as much to a new parking fee (they pay more if they use a parking space) than to a parking cash out incentive ( they receive a rebate for reducing their use of parking spaces) of the same amount. Describe the logic behind this phenomenon.