Question

1a. Consider demand for gasoline in Irvine. Would you would expect demand to be more elastic in the short run or the long run?

Group of answer choices

a. In short run, demand is more elastic

b. In long run, demand is more elastic

1b. Please explain your reasoning: (Select all that are true)

Group of answer choices

a. Because in the short run, prices change more frequently

b. Because in the long run, people can switch to greener transportation

c. Because in the short run, more gasoline can be produced

d. Because in the long run, prices will increase

2a.

Which of the following goods would you expects to have more elastic demand?

Group of answer choices

a. Chewing gum

b. Cigarettes

2b. Why? (Select all that are true)

Group of answer choices

a. Because chewing gum is comparable to more goods, that people can use instead

b. Because cigarettes have negative health effects in the long term

c. Because chewing gum has fewer regulations on its production

d. Because cigarettes generally have a higher price

Answer 1

1a.

Answer: b

Demand is more elastic in the long-run.

Elasticity of demand (Ed) is the ratio of “% change in QD” to “% change in price”. If the ratio is more than 1, indicating the higher percentage change in QD compare to the percentage change in price, then the demand becomes elastic.

1b.

Answer: b

This happens in the long-run only, since during such long span of time people can invent other alternatives of gasoline (like greener transportation); they can switch to that alternative very quickly if there is a slight increase in the price of gasoline; this makes Ed of gasoline greater than 1 very fast.

Such invention is not possible in the short-run, making less elastic.

2a.

Answer: a

The product C. gum is more elastic, since a slight change in price affects its demand in bigger quantity.

The product C is not that type of; its responsiveness toward price is very low (inelastic demand).

2b.

Answer: a

C. gum has so many alternatives, like lozenge, candy, toffee, etc. These could be used instead of C. gum, making the product more elastic.

This is not possible in case of C, since it comes out of habit and an increasing price can’t change such habit heavily. Therefore, its demand is inelastic.