Consider the market for gas. In the past decade, there has been the emergence of electricity as an alternative fuel source for cars. What do you think would be the effect of this new option for car fuel on the PED for gas?
1) Decrease in Magnitude
2)Increase in magnitude
3)Unchanged
4)Unclear
5)None of the above
1 or 2, whichever one means PED for gas becomes more elastic. This is because the availability of substitutes increases, therefore a change in price can lead to people going to or going away from electricity as a source of fuel.
