Final answer:
The drop in energy-efficient car sales alongside a decline in gasoline prices indicates cross elasticity of demand, suggesting these products are substitutes. In the short run, demand for energy is inelastic, but in the long run, elasticity increases as consumers change habits and make investments to reduce dependency on gasoline.
Step-by-step explanation:
When analyzing the relationship between the sales of energy-efficient cars and the price of gasoline, we look at the cross elasticity of demand. This economic measure indicates how the quantity demanded of one good responds to a price change in another good. The fact that energy-efficient car sales fell by 20% while gasoline prices decreased by 15% suggests that these two products may be cross-elastic, which means that they are substitutes to some extent. As gasoline becomes cheaper, consumers are less inclined to purchase energy-efficient cars, which typically have higher upfront costs but lower running costs due to their fuel efficiency.
Considering the longer-term perspective, the elasticity of demand for energy can change. In the short run, energy demand is somewhat inelastic because consumers cannot easily change their consumption habits. However, in the long run, as they have more time to adjust, the elasticity of demand for energy becomes more elastic because consumers can make significant lifestyle or investment changes that reduce their dependency on gasoline, such as buying energy-efficient cars.