Question

# suppose the price of elasticity for heating oil is 0.1 in the short run and 0.9...

suppose the price of elasticity for heating oil is 0.1 in the short run and 0.9 in the long run.

if the price od heating oil rises from \$1.90 to \$2.10 per gallon, the quantity of heating oil demand will (fall, rise) by _____% in the short run and by _____% in the long run. the change is (larger,smaller) in the long run because people can respond (more, less) easily to thr change in the price of heating oil.

Elasticity = %change in demand / %change in price

% change in price = (new price - old price) / Old price * 100

= (2.10-1.90)/(1.90) * 100 = 10.5%

%change in demand = elasticity *%change in price

In short run (when elasticity is 0.1)

%change in demand = 0.1*10.5 = 1.05%

In long run (when elasticity is 0.9)

% change in demand = 0.9*10.5 = 9.45%

The change is larger in long run, because people can respond more easily to the change in price of heating oil in long run.

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