# 1.Consider the following: â??The sharp rise in gasoline prices in the mid 1970â??s lead to a sharpde

1.Consider the following: â€œThe sharp rise in gasoline prices in the mid 1970â€™s lead to a sharpdecline in the demand for â€˜gas guzzlingâ€™ cars and large unsold inventories (surpluses) whenmany dealers refused to cut their sticker prices.â€ Use a supply/demand diagram of the â€˜fuelinefficientâ€™ or â€˜gas guzzlingâ€™ car market and brief verbal descriptions to explain thisquotation.2. Using competitive supply/demand diagrams explain the effect of expectations of higherfuture stock prices by buyers and sellers on the equilibrium price and quantity of stocks.(Hint: Use only one diagram)3. Calculate the elasticity of demand using midpoint method in each of the following cases(P1 and Q1 are initial price and quantity whereas P2 and Q2 are final price and quantity)a) Market for gasoline reported the following prices and quantities sold as below:P1 = \$1.20/gallon, Q1 = 5600 gallons; P2 = \$1.40/gallon, Q2 = 5400 gallonsb) Market for luxury clothing (Suits) reported the following prices and quantities:P1 = \$399, Q1 = 450; P2 = \$349, Q2 = 600Comment on the nature of elasticity in each case based on your answers.)4. Consider the following: â€œIn 1973 several major oil producing countries formed a cartel.The cartel effectively decreased the supply of crude oil. Gasoline price rose sharply as didthe total revenues flowing to the oil producing countries.â€ Use a supply/demand diagramof the gasoline market and your knowledge of the price elasticity of demand (Ed) toillustrate and explain this quotation.