“When analyzing demand and supply, it is important todistinguish between the sho
ID: 1242087 • Letter: #
Question
“When analyzing demand and supply, it is important todistinguish between the short run and the long run. In other words,if we ask how much demand or supply changes in response to a changein price, we must be clear about how much time is allowed to passbefore measuring the changes in the quantity demanded or supplied.In general, short-run demand and supply curves look very differentfrom their long-run counterparts.” Consider two goods: carsand burgers.
Would you expect the price elasticity of demand for carsto be larger in the short-run or in the long-run? Why
Explanation / Answer
this question has to do with the length of the purchase cycle orthe distinction inbetween durable and non durable good. The car is a nondurable good thus if price of cars in the short runincrease by a great deal people still need cars and thus are forcedto by them so we see cars in the short run are price inelastic thusit is below 1 however if year over year cars drasticlly increase inprice people will look at other modes of transport so in the longrun they are price elastic. The price elasticity of emand for cars is less in the short runthat in the long run.
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