The demand of gasoline is more inelastic in the short run than in the long run.
ID: 345213 • Letter: T
Question
The demand of gasoline is more inelastic in the short run than in the long run. Why? Give examples that illustrate why the demand of gasoline in the long run is not inelastic.The demand of gasoline is more inelastic in the short run than in the long run. Why? Give examples that illustrate why the demand of gasoline in the long run is not inelastic.
The demand of gasoline is more inelastic in the short run than in the long run. Why? Give examples that illustrate why the demand of gasoline in the long run is not inelastic.
Explanation / Answer
Price Elasticity of demand depicts how much will the demand for a good will change vis-a-vis change in price.
It is calculated by Percentage Change in Quantity Demanded / Percentage Change in Price
A good is said to have inelastic demand if Price elasticity of demand is less than 1 i.e the percentage change in quantity demanded is < Percentage change in the price. Thus, the demand is less dependent on price for these goods. They usually are items which are necessary
A good is said to have elastic demand if Price elasticity is more than 1 i.e Percentage Change in Quantity Deamnded > Percentage Change in Price . These include various goods like AC's , Mobile Phones, Restaurant Service etc
GASOLINE- The demand for gasoline is usally inelastic in short-run. People normally have a difficult time in adjusting to higher gas prices quickly. The usual steps they take like carpooling, taking public transport , or walking more etc have little effect on thier demand. At the same time there is lack of other alternatives.
In the short run other factors affecting demand such as Income, substitute goods, taste and preferences etc stay constant. Because consumers are highly dependent on GASOLINE and it is a necessary product, people cannot reduce thier demand by a significant amount
IN THE LONG RUN, people have more options to switch to products or practices that will signifcantly reduce thier demand. Things include moving over new tech vehicles that use less gasoline or work on electricity , moving closer to work , improved public transport networks etc. This has a significant impact on demand for gasoline and in long run , elasticity of demand is elastic
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.