Final answer:
Given a long run oil demand elasticity of -0.5, a 10% increase in oil prices would cause a 5% decrease in quantity demanded. This is because over the long term, consumers and businesses can make greater adjustments to changes in price.
Step-by-step explanation:
The question is about the long-run elasticity of oil demand which has been estimated at -0.5. This elasticity refers to the percentage change in quantity demanded in response to a 1% change in price over the long term. So, if the price of oil rises by 10%, the quantity of oil demanded will fall by 5% (0.5 times the 10% price increase). This is because, in the long run, consumers and businesses have more flexibility to respond to price changes by making adjustments such as buying more fuel-efficient cars or making other energy conserving choices as seen in the examples given from the 1973 and 1983 US oil consumption data.
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