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Long-Run vs. Short-Run Demand Elasticity
The price elasticity of demand for a good often varies between the short run and the long run. Demand typically becomes more elastic in the long run as consumers have sufficient time to alter their purchasing habits and find substitute products. In the short run, consumers may be constrained by their existing durable goods, but over a longer period, they can switch to different options in response to price changes.
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Social Science
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Economy
CORE Econ
Economics
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.8 Supply and demand: Markets with many buyers and sellers - The Economy 2.0 Microeconomics @ CORE Econ
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A pharmaceutical company and a local gourmet coffee shop both increase the price of their flagship products by 10%. The pharmaceutical company sells a patented type of insulin, a life-saving medication for which there are no direct substitutes. The coffee shop sells a popular specialty latte, for which there are many alternative beverage options nearby. Based on the principles of consumer responsiveness to price changes, which of the following outcomes is most likely?
A local movie theater raises its ticket price by 15%. In response, the number of tickets sold per week decreases by 30%. Based on this information, how would you characterize the consumer demand for movie tickets at this theater?
Consider a standard, downward-sloping, straight-line demand curve. As one moves from a high-price, low-quantity point down along the curve to a low-price, high-quantity point, what happens to the slope of the curve and the price elasticity of demand?
A company's market research team determines that the demand for its flagship product is price inelastic. The company's primary goal is to increase its total revenue. Based on this information, which pricing strategy should the company implement?
Two distinct, downward-sloping linear demand curves, D1 and D2, intersect at point E. At this point, curve D1 is steeper than curve D2. Which of the following statements is true regarding the price elasticity of demand at point E?
The slope of a demand curve is a more reliable measure of consumer responsiveness to price changes than the price elasticity of demand because the slope's value is constant along a straight-line demand curve.
Analyze the characteristics of each product listed below and match it with the description that best explains its likely price elasticity of demand.
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Comparing Measures of Price Responsiveness
A local bakery increases the price of its artisan bread from $10 to $12 per loaf. As a result, the weekly quantity demanded falls from 100 loaves to 80 loaves. The price elasticity of demand for this bread is ____. (Enter a numerical value rounded to one decimal place)
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Short-Run Inelasticity and Long-Run Elasticity of Oil Demand
A city government introduces a substantial and permanent 50-cent tax on each single-use plastic shopping bag, which was previously provided for free. Which statement best analyzes the relationship between this price change and the quantity of these bags demanded over different time horizons?
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True or False: Following a significant and permanent price increase for gasoline, the percentage decrease in the quantity demanded is likely to be larger in the first month after the price change than it will be two years later.
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The price of home electricity rises by 30% and is expected to stay high permanently. Which of the following statements best analyzes why the price elasticity of demand for electricity will be greater two years after the price increase compared to during the first month?
A national government imposes a new, permanent 25% tax on gasoline, causing a significant and lasting price increase. Analyze the following consumer and market reactions by matching each one to the time frame in which it is most likely to occur.
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A company that sells a patented, highly specialized medication for a chronic condition is considering a permanent 30% price increase. The medication has no direct competitors. Two executives are debating the strategy:
- Executive A argues: "Let's proceed. In the first six months, our revenue will soar. Patients depend on this medication daily and have no other immediate choice, so the quantity demanded will barely drop."
- Executive B argues: "I'm cautious. This price hike could accelerate research and development by other firms to create a substitute. Within a few years, we might face new competition that erodes our market share, or doctors may start prescribing older, less effective treatments more often."
Based on the economic principles of demand over different time horizons, which executive's reasoning best incorporates the potential long-term risks?