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Suppose the price elasticity of demand for heating oil is 0.2 in the short run and 0.7 in the long run. If the price of heating oil rises from $1.90 to $2.10 per gallon, the quantity of heating oil demanded will fall by 40% in the short run and by 14% in the long run. The change issmaller in the long run because people can respond less easily to the change in the price of heating oil.

User Kaganar
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1 Answer

4 votes

Answer: Quantity demanded will fall by 2.1% in the short-run and by 7.3% in the long-run, larger

Step-by-step explanation:


Percentage change in price =(2.10 - 1.90)/(1.90) * 100

=
(0.20)/(1.90) * 100

= 10.25%

Short-run elasticity is 0.2

Long-run elasticity is 0.7

Therefore,


percentage change in quantity in short run = 0.2 * 10.5

= 2.10%


percentage change in quantity in short run = 0.7 * 10.5

= 7.35%

Quantity demanded will fall by 2.1% in the short-run and by 7.3% in the long-run.

The change is larger in the long run because people can respond less easily to the change in the price of heating oil.

User Brian Hinchey
by
8.6k points
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