ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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It is very expensive.
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We depend on oil to make it.
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There are very few subtitutes to gasoline.
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None of the above
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Detailed explanation-1: -Short-run gasoline is more inelastic than long-run because in the short run, we have to buy gas to keep our car going. In the long run, we can switch to more fuel-efficient cars (including hybrid), ride the bus or walk more. But in the short-run, those options are not available.
Detailed explanation-2: -When price of fuel rises, the quantity of fuel demanded falls only slightly in first few months. So in the short run, demand for fuel may be very inelastic.
Detailed explanation-3: -what makes the demand inelastic for gasoline? There are many reasons that can make demand for a good inelastic. With gasoline, there are few substitute goods–a good that, if consumed, can reduce the consumption of another good.
Detailed explanation-4: -Gasoline demand is relatively elastic to price and income change in both the long run and short run, and each elasticity is higher in the long run than in the short run.
Detailed explanation-5: -As a result, demand and supply often-but not always-tend to be relatively inelastic in the short run and relatively elastic in the long run.