Consider Sam and Linda both drive a relatively inefficient sport utility vehicle (SUV). Sam has a lease that doesn't expire for three years whereas Linda owns her sport utility vehicle free and clear. If the price of gasoline was to increase by fifty percent, which of these statements is most likely TRUE?
A) Linda will have a less elastic response than Sam.
B) Sam will have a less elastic response than Linda.
C) Sam and Linda will have identically elastic responses.
D) Sam will have a more elastic response than Linda.
Question 2
Some environmental groups are on record suggesting that the price of gasoline should be much higher than it was in the early 1990s. Why might they say this?
A) They own stock in oil companies.
B) They anticipate that the longer the price is high, the more elastic the response by consumers will be.
C) They anticipate that the longer the price is high, the less elastic the response by consumers will be.
D) They anticipate that higher prices will reduce the price elasticity of supply of oil.
Linda B. Buck
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