Final answer:
Demand is more price-elastic in the long run due to the increased ability of consumers and producers to adjust over time, which leads to larger quantity adjustments rather than price changes.
Step-by-step explanation:
It is true that demand is almost always more price-elastic in the long run. In the short run, both supply and demand are generally more inelastic, meaning that shifts in either can lead to significant price changes due to the limited ability of consumers and producers to alter their quantity demanded or supplied.
However, over time as consumers and producers adjust, the elasticity of both supply and demand increases. This leads to more substantial adjustments in quantities rather than prices when changes in market conditions occur. In other words, long-term adjustments allow for greater flexibility and adaptation, making quantity changes more commonplace than price changes as a response to shifts in the market.
Understanding the concept of elasticity is crucial in various business and economic scenarios, such as tax incidence. When a tax is imposed, the side of the market (buyers or sellers) that is less able to respond to price changes (more inelastic) will bear the greater burden of the tax. Tax revenue is also affected by elasticity, being larger when demand and supply are more inelastic.