Question

The price elasticity of demand is lower in the short run than in the long run when
there is more scope to substitute other goods.
Explain that using an example from local Palestinian environment .

Answer 1

Suppose the prices of gasoline rises in the Palestine. The increase in the prices of gasoline leads to less than proportional reduction in the quantity demanded in the short run. Over time, people can shift to near their workplace or can depend on other fuels to reduce the consumption of gasoline. Thus, price elasticity of demand is demined by time horizons and close substitutes availability. The longer the time period, more prounced is the effect of price elasticity and availability of close substitutes means more elastic the demand curve.