Question

2 - The book states that over time the elasticity of demand for a good is more elastic. What does this mean? In your own life when the price of gasoline was over $4.00 per gallon, how did the amount of your diving change? Over time did you even drive less? Would you say that over time your demand elasticity for gasoline was more elastic?

Answer 1

Answer

True, the demand becomes more elastic overtime. This means that consumers may switch to newer products or other substitutes if the price of the good increases. Usually, overtime, new competitors enter the market and the dependency on just one seller or just a few seller reduces.

However, this is not true in case of Gasoline. The quantity demanded for gasoline does not change much over time. This is because it is a necessary/ essential product. Also, gasoline hardly has any proper substitute. Thus, the demand for this product cannot be elastic. Thus, even in long term the customers cannot switch to any other product but gasoline. Thus, even if prices increase, the consumers will still consume more or less the same quantity.