Question

Suppose the price elasticity of demand for heating oil is 0.2 in the short run and 0.7 in the long run.
If the price of heating oil rises from $1.80 to $2.20 per gallon, the quantity of heating oil demanded in the short run will ___ by ___ in the short run and by ___ in the long run. The change is ____ in the long run because people can respond _____ easily to the change in the price of heating oil.

Answer 1

Answer:

The quantity of heating oil demanded in the short run will fall by 4% in the short run and by 14% in the long run. The change is larger in the long run because people can respond more easily to the change in the price of heating oil.

Explanation:

Given price of elasticity of demand for heating oli:

In tge short run= 0.2

In the long run = 0.7

% change in price in the short run

$= \frac{2.20 - 1.80}{2} * 100 = 20 percent$

In the short run,

Price elasticity of demand = Percentage change in quantity demanded/percentage change in price.

0.2 = Percentage change in quantity demanded/20

Percentage change in quantity demanded = 20 * 0.2 = 4%

In the long run,

Price elasticity of demand = Percentage change in quantity demanded/percentage change in price.

0.7 = Percentage change in quantity demanded/20

Percentage change in quantity demanded = 20 * 0.7 = 14%

Therefore, the quantity of heating oil demanded in the short run will fall by 4% in the short run and by 14% in the long run. The change is larger in the long run because people can respond more easily to the change in the price of heating oil.