What does it imply when a household expects to spend less on gasoline due to price declines?

When a household expects to spend less on gasoline due to anticipated price declines, it suggests that the quantity demanded for gasoline will likely increase as prices decrease. This implication relates to the concept of demand elasticity — specifically how sensitive the quantity demanded of a good is to changes in price.

In this scenario, the correct answer indicates that the elasticity of demand for gasoline is less than one, which means that gasoline is considered a necessity for many consumers. When the price decreases, the percentage increase in quantity demanded is smaller than the percentage decrease in price, leading to an inelastic demand situation. This configuration supports the idea that if consumers anticipate lower prices, they may expect lower expenditure overall as they adjust their consumption accordingly.

In contrast, if the elasticity of demand were greater than one, it would imply a more elastic demand where consumers would significantly increase their quantity demanded in response to price changes, which is not consistent with the expectation of spending less in this context. Similarly, if the demand for gasoline were perfectly elastic, any change in price would lead to an infinite change in quantity demanded, which is not what is suggested here. Lastly, the income effect, which reflects how changes in purchasing power affect demand, plays a role in this situation; however, the statement about spending