ECN(7).pdf - 2 Time horizon and elasticity Aa Aa a The time...

Info icon This preview shows page 1. Sign up to view the full content.

Image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 2. Time horizon and elasticity Aa Aa a The time horizon of the demand curve is one determinant of the price elasticity of demand. Compared to the short-run demand for oil, the demand for oil in the long run will tend to be more ‘/ elastic. Explanation: Close A More substitutes are available in the long run than in the short run. If oil prices rise sharply, firms that currently use oil or oil-based products to produce goods and services will not be able to switch quickly to another energy input. Furthermore, consumers who rely on products derived from oil, such as gasoline for cars, will find it difficult to switch to alternative fuels in the short run. In the very short run, the demand for oil is, therefore, highly inelastic. If the price of oil stays high for a long period of time, firms and families will begin substituting away from oil-intensive activities and products. Firms may adopt alternative energy sources such as solar, coal, or ethanol. Households may begin to drive less and drive more fuel-efficient cars when they do. Since buyers of oil and oil-based products can pursue more alternatives to oil in the long run, the long—run price elasticity of demand for oil is larger than short-run elasticity. ...
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern