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Elasticity
Review Problems
Problem 2.1:
Usually, when gas prices go up in the U.S., it is the result of some action by
OPEC. How would you explain this, verbally and graphically, using elasticity as
part of your argument?
[Solution]
Problem 2.2:
Why would demand for oxygen be more inelastic than demand for caviar (assuming
that you have to buy both goods in order to have them)?
[Solution]
Problem 2.3:
From each pair of goods, pick the good for which demand will most likely be more
elastic:
Coffee and water
Rice and ham
Underwear and tuxedos
Velvet and cotton
Coffee makers and espresso machines
[Solution]
Problem 2.4:
How is it possible for the elasticity of demand to change over time (in the long
run)?
[Solution]
Problem 2.5:
Why would a government tax on cigarettes be an ineffective method to decrease
consumption of cigarettes if demand for cigarettes is inelastic?
[Solution]
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