Question

3) Multipole choice: When you compare the absolute value of the price elasticity of demand for most products [Hint, oil is one product that works this way.] in the long run (20 years) vs. absolute value of the elasticity of demand for the products in the short run (6 months), the absolute value of the long run price elasticity of demand is… [Note: we consider demand elasticity positive, even though they’re technically negative. In other words, for purposes of this question, “greater” means farther away from zero.] a) less than that of the short run. In the long run, this elasticity will always be very close to zero. b) not zero, but less than that of the short run. c) equal to that of the short run. d) greater than that of the short run.

Answer 1

Option D is correct.

• Elastcity of demand measures the percentage change in quantity demanded due to percentage change in price.
• The value of absolute elasticity in the long run will be always greater than that of short-run.
• It is so because in the long run, demand is relatively more elastic.
• People have more time in the long run to switch to something else or to find the substitutes.
• Therefore, a small percentage change in the price changes the demand drastically in the long run as compared to the short run.