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E202PracticeExam1.7 - Chapter 4 9 Considering what...

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Chapter 4 9. Considering what determines the price elasticity of demand, why are students often offered discounts on many items such as movie tickets and airfares? Answer : Income is a major determinate of demand elasticity. Students typically have lower incomes. Their schedules also might be more flexible. 10. Why are gasoline prices so much more volatile than car prices? Answer : Demand for gasoline is less elastic than demand for cars. It is easier for people to delay purchasing a new car than to put off filling up their gas tank. Also, supply shifts are larger and more frequent for gasoline than for cars. Supplies of crude oil are far more volatile than supplies of the various inputs into cars, such as steel and labor. Wars, hurricanes, and OPEC cause shocks in the supply of crude oil and refining into gasoline. Chapter 5 11. Martha’s current marginal utility from consuming orange juice is 75 utils per ounce and her marginal utility from consuming coffee is 50 utils per ounce. If orange juice costs 25 cents per ounce and coffee costs 20 cents per ounce, is Martha maximizing her total utility from the two
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