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Assignment #2Demand Elasticities 1. As Gasoline Prices Soar, Americans Slowly Adapt… in March, Americans drove 11 billion fewer miles than in March 2007…“People have recognized that prices are not going down and are adapting tohigher energy cost.” … Americans spend 3.7 percent of their disposable incomeon transportation fuels. At its lowest point, that share was 1.9 percent in 1998,and at its highest it reached 4.5 percent in 1981… “We actually have a lot ofchoices, based on what car we drive, where we live, how much time we chooseto drive, and where we choose to go.” For many people, higher energy costsmean fewer restaurant meals, deferred weekend outings with the kids, less airtravel and more time closer to home. …International Herald Tribune, May 23, 2008Answer the following questions: 2. (i) List and explain the elasticities of demand that are implicitly referred to in thenews clip. (ii) Explain the factors identified in the news clip that may make the demand forgasoline inelastic. How inelastic is the demand for gasoline? If the demand for gasoline is relativelyinelastic, why does Joe’s Quick-Mart lose a lot of business when he raises his gasprices?

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