question archive Suppose the price elasticity of demand for heating oil is 0
Suppose the price elasticity of demand for heating oil is 0
Subject:EconomicsPrice:2.88 Bought3
Suppose the price elasticity of demand for heating oil is 0.1 in the short run and 0.9 in the long run. If the price of heating oil rises from $1.20 to $1.80 per gallon, the quantity of heating oil demanded will do what by what percent in the short run and what by what percent in the long run? The change is what in the short run because people can respond more or less easily to the change in the price of heating oil?
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The price increases by 50%; that is, ( ($1.80 - $1.20) / $1.20 ) x 100.
- In the short-run, the (absolute value of the) price elasticity is 0.1; then, the quantity demanded would drop by 5% (= 50% x 0.1).
- In the long-run, the (absolute value of the) price elasticity is 0.9; then, the quantity demanded would drop by 45% (= 50% x 0.9).
- The change is SMALLER in the short run because people can respond LESS EASILY to the change in the price of heating oil.
