“When analyzing demand and supply, it is important todistinguish between the sho
ID: 1244351 • 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
Durable goods have greater short run price elasticity as compare to long run. Reason being that the nature of the goods required longer time frame to show the actual effect of price on the demand, For example when complement (fuel) price increases the sale of automobiles decrease immediately 1. And when a car company increase the price of the goods so the sale also decreases its means that the price elasticity is very high for car in short run 2. But no one can substitute the car with other transportation mediums, so after some short time they again purchase car and the sale of the cars increases its means that the elasticity of the cars is shorter in the long run. 3. For the burger the short run elasticity is less than lung run elasticity. The elasticity for the cars is larger in the short run. People may stop the immediate purchase but eventually replace new cars. You can compare the above diagram for comparison of elasticity
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