1. Some people believe that changes in the price of gasoline have no effect on purchases of gasoline. They see gasoline as a necessity that will be purchased in the same amounts regardless of the price. If this were truly the case, what does that imply about the shape of the demand curve for gasoline? Do you think the demand curve for gasoline really does have that shape?
2. Phil Sanders, an economics major who recently graduated from a local college, was hired as a consultant by the Middletown City Council. A member of the Council proposed lowering fares for public transportation (buses and trolleys). He reasoned that the lower price would increase both the number of people using public transportation and revenue from fares. The increased revenue would be used to buy new buses. When he estimated price elasticities of demand, Sanders found that the price elasticity of demand for both bus and trolley service was0.6. What advice should Sanders give the City Council?
3. Assume that economic growth causes incomes to rise in the United States by 5 percent. Use the income elasticities of demand fromMaking the Connection"Price Elasticity, Cross-Price Elasticity, and Income Elasticity in the Market for Alcoholic Beverages" on page 187 in the textbook to estimate the change in the quantities demanded for beer, wine, and spirits.
4. According to Jerry Hausman, an economist at MIT, the price elasticity of demand for Post Raisin Bran cereal is -2.5, while the price elasticity of demand for all types of breakfast cereals is -0.9. How can you explain the difference between the two elasticities?

5.Your friend argues that since the slope is constant along a linear demand curve so is elasticity. Is he correct? Why or why not?