and tion in guantity data ich short-run pricé greater w elasticities of demand.
ID: 1114230 • Letter: A
Question
and tion in guantity data ich short-run pricé greater w elasticities of demand. In shppt, the price elasricity hange perssts over a lon prite ela exhibit 6 Price Elasticities of Demand for Selected Goods Good Salt Air travel Gasoline Medical care and hospitalization Jewelry and watches Physician services Alcohol Movies China, glassware Short Run Long Run o1 6 0,2 0.3 0. 0,6 3.6 9 1.5 1.9 3.7 2.6 2.2 Automobiles Chevrolets SOURCES: Adapted from Robert Archibald and Robert Gillingham, An Analysis of the Short. Run Consumer Demand for Gasoline Using Household Survey Data," Review of Economics and Statistics 62 (November 1980): 622-528; Hendrik S. Houthakker and Lester D. Taylor, Consumer Demand in the United States: Analyses and Projections (Cambridge, Mass: Harvard University Press, 1970), pp. 56-149; Richard Voith, The Long-Run Elasticity of Demand for Commuter Rail Transportation, Journal of Urban Economics 30 (November 1991): 360-372. 978133 7027793, Exploring Economics, Seventh Edition, Sextion - Cengage Leaning All rights reserved No diailbution llowed wihoud esyres uzbosni Choose one of the goods listed in Section 5.1, exhibit 6 on page 161 of the text. Is short-run demand for this item elastic or inelastic? Explain. Is long-run demand for this item elastic or inelastic? Explain. Using the same good chosen in question 1, explain how each of the Determinants of Price Elasticity of Demand would or would not affect your demand for the good or service. These determinants are covered on pages 159-160 of the text f the producers of the good chosen in question 1 were to decide to rase prices, how would their ttl rwrenue be ffected? Would it increase or decrease? ExplainExplanation / Answer
Take any particular good such as gasoline. With the value of 0.2 in the short run and 0.7 in the long run we believe that the demand for gasoline is price inelastic in both periods but the elasticity increases with the passage of time.
This implies that in the long run the demand will be relatively elastic which is then decided or determined by the factors that affects the elasticity of demand. This includes time Horizon, share in the budget of consumer as well as the availability of close substitutes.
In the short run consumers are not able to adapt themselves for other alternatives which implies that the demand remains inelastic in the short run. In the long run with sufficient time to adjust consumers will demand less of gasoline when the prices increased and hence they will switch to other alternatives or look for another vehicle all together. Gasoline does not constitute a larger portion in the budget and hence its demand is relatively inelastic. In the short run the demand is inelastic because of the no close substitutes of gasoline been present in the short run. Over the period of time with research and development other resources become available.
For a producer the demand is inelastic which implies that the producer can earn profit by increasing price. This is so because higher price in case of inelastic demand reduces the quantity demanded by a smaller proportionate amount which leads to an increase in revenue. For products who's demand is elastic producers need to reduce the price to increase revenue.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.