What information is Harvey giving about the elasticity of demand?

Harvey has electric heat and says that he needs electricity. No matter what the price, he says he will pay it to keep warm. What information is Harvey giving about the elasticity of demand? Might there is a difference between Harvey’s demand this winter and next winter? Explain.

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Expert Solution

What ever the price is he is ready to pay any price to keep warm. This shows that demand for heat is inelastic I.e. demand does not change with change in its price.

However demand might change between this winter and next winter because of the time gap. That is in the long run Harvey may get time to adjust with the prices and keep some substitute for heat if electric heat is not available.

This concludes that elasticity is relatively inelastic in short run I.e. shorter period of time than longer period of time.

Rahul Sunny answered 1 year ago

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