ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Short run versus long run: Price elasticity of demand is usually lower in the short run, before consumers have much time to react, than in the long run, when they have greater opportunity to find substitute goods. Thus, demand is more price elastic in the long run than in the short run.

Detailed explanation-2: -Elasticities are often lower in the short run than in the long run. Changes that just aren’t possible to make in a short amount of time are realistic over a longer time frame. On the demand side, that can mean consumers eventually make lifestyle choices-like buying a more fuel efficient car to reduce their gas usage.

Detailed explanation-3: -All goods tend to be more elastic in the long-run than in the short run. Why? Time allows people to find substitutes. So, if the price of gasoline were to increase, in the short-run you would likely decrease the quantity you demand, but only slightly.

Detailed explanation-4: -Supply is normally more elastic in the long run than in the short run for produced goods, since it is generally assumed that in the long run all factors of production can be utilized to increase supply, whereas in the short run only labor can be increased, and even then, Page 2 changes may be prohibitively costly.

Detailed explanation-5: -Price elasticity of demand is a measurement of the change in the consumption of a product in relation to a change in its price. Expressed mathematically, it is: Price Elasticity of Demand = Percentage Change in Quantity Demanded ÷ Percentage Change in Price.