4.4 short run and long run elasticity of demand

• The price elasticity of demand depends on the time consumers have to adjust to price changes. The difference between the short run and the long run is how much flexibility consumers have in responding to price changes over time.
• Short Run:

  • Limited adjustment: Consumers don’t have much time to change their habits or find alternatives when prices rise, so their demand remains relatively stable (inelastic).
• Long Run:

  • More adjustment: Over time, consumers can make more significant changes, like buying fuel-efficient cars or moving closer to work. As a result, their demand becomes more elastic (they can reduce their consumption more easily in response to higher prices).
• • In the short run, demand for most goods is inelastic because consumers need time to change their habits or find substitutes.
• In the long run, demand becomes more elastic as consumers have time to adjust to new prices and switch to alternatives.
• The long run gives consumers more flexibility, leading to larger changes in demand in response to price changes.
• How Long is the Long Run?

  • There is no fixed time frame for the long run. It depends on the product
• Oil:

  • Short-run elasticity: -0.07 (very inelastic; consumers can’t easily reduce oil use in the short term).
  • Long-run elasticity: -0.18 (slightly more elastic; over time, consumers can adjust by finding alternatives or using less oil).
• Bus services:

  • Short-run elasticity: -0.43 (moderately inelastic; people can’t immediately change their transport habits).
  • Long-run elasticity: -1.25 (more elastic; over time, people might use cars, bicycles, or find other ways to commute).
• • Corn:
  • Short-run elasticity: -1.11 (elastic; consumers can adjust their diets or find substitutes quickly).
  • Long-run elasticity: -1.64 (more elastic; over time, farmers can change crop choices or consumers find more substitutes).