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Chapter 6: Problem 6

The price elasticity of demand for crude oil in the United States has been estimated to be -0.06 in the short run and -0.45 in the long run. Why would the demand for crude oil be more price elastic in the long run than in the short run?

Short Answer

Expert verified
The demand for crude oil is more price elastic in the long run than in the short run because over a longer time scale, consumers and businesses are able to find and move to alternatives, adjust their behavior, and implement new technologies in response to price changes. These adjustments are not as feasible to perform in the short run, making demand less elastic during shorter periods.

Step by step solution

01

Understand Short Run Elasticity

In the short run, there are fewer alternatives to crude oil available. This could be because technologies to use alternative fuels are not well developed yet, or it is difficult to quickly switch to other forms of energy. This means people can't adjust their consumption habits quickly in response to price changes, resulting in a less elastic demand.
02

Understand Long Run Elasticity

In the long run, however, there is more time for individuals and businesses to adapt to price changes. This could involve investing in technologies that use alternative fuels, improving energy efficiency or changing habits to use less energy. As a result, when the price of crude oil increases, people are more likely to reduce their consumption, indicating a more elastic demand.
03

Similarities and Differences between Short and Long Term Elasticity

Therefore, the main difference between the short and long term is the availability of viable alternatives and the ability of consumers to adjust their behavior. The more alternatives and the more time available to respond to price changes, the more elastic demand becomes.

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Most popular questions from this chapter

Define the income elasticity of demand. How does the income elasticity of a normal good differ from the income elasticity of an inferior good? Is it possible to tell from the income elasticity of demand whether a product is a luxury good or a necessity good?

The entrance fee into Yellowstone National Park in northwestern Wyoming is " 30 for a private, noncommercial vehicle; \(\$ 25\) for a motorcycle or a snowmobile; or \(\$ 15\) for each visitor 16 and older entering by foot, bike, ski, etc." The fee provides the visitor with a seven-day entrance permit into Yellowstone and nearby Grand Teton National Park. a. Would you expect the demand for entry into Yellowstone National Park for visitors in private, noncommercial vehicles to be elastic or inelastic? Briefly explain. b. There are three general ways to enter the park: in a private, noncommercial vehicle; on a motorcycle; and by foot, bike, or ski. Which way would you expect to have the largest price elasticity of demand, and which would you expect to have the smallest price elasticity of demand? Briefly explain.

Briefly explain whether the demand for each of the following products is likely to be elastic or inelastic: a. Milk b. Frozen cheese pizza c. Gasoline d. Prescription medicine

One study found that the price elasticity of demand for soda is -0.78 , while the price elasticity of demand for Coca-Cola is \(-1.22 .\) Coca-Cola is a type of soda, so why isn't its price elasticity the same as the price elasticity for soda as a product?

What is the midpoint formula for calculating price elasticity of demand? How else can you calculate the price elasticity of demand? What is the advantage of using the midpoint formula?
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