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The long-run price elasticity of demand is usually larger than the short-run price elasticity of demand because: a
The long-run price elasticity of demand is usually larger than the short-run price elasticity of demand because:
a. incomes tend to rise over time.
b. economists take the absolute value of long-run price elasticities but not of short-run elasticities.
c. demand curves tend to become steeper over time.
d. people have more time to find substitute goods.
Expert Solution
Answer: D
In the long-run consumers have more time find substitute goods which means they will be more sensitive to changes in price and thus the price elasticity of demand will increase.
For example, assume I show up at the airport and want to get a flight to Houston for a business trip from Dallas. If the airline charges me a higher price than I expected I will likely still buy the ticket because I need to be there in time for my business meetings. Now assume that I knew the price would be high 3 weeks ahead of time. I could look at other options such as taking he 3-4 hour drive instead and still make it in time.
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