Question

The price elasticity of demand of a good is also impacted by the defined time horizon. Compared to the short-run demand for oil, the demand for oil in the long run will tend to be ________.

1) inelastic
2) elastic
3) constant
4) unknown

Answer 1

In the long run, the demand for oil will tend to be more elastic compared to the short-run demand due to consumers' ability to adjust their consumption through various means over time.

Step-by-step explanation:

Compared to the short-run demand for oil, the demand for oil in the long run will tend to be more elastic. This is because, in the short run, consumers have limited options for adjusting their consumption in response to price changes. In contrast, over the long run, consumers have more flexibility to adapt by making choices that reduce their dependency on oil, such as purchasing more fuel-efficient vehicles or installing energy-efficient appliances in their homes. Availability of substitutes and time for adjustment play significant roles in determining the price elasticity of demand over different time horizons.