Question: Price changes move quantity demanded or supplied up or down along the curve; changes in the determinants of demand (income, price of related goods, population, tastes, consumer price expectations) or supply (input costs, technology, number of firms, producer price expectations) shift the related supply curve The resulting market equilibrium is achieved when quantity demanded equals quantity supplied at a given price; there is then no shortage or surplus. This information allows us to understand real-world price or quantity movements; for example, lower prices associated with lower quantities must be the result of a demand decrease, not a supply increase.

The price elasticity of demand measures the responsiveness of consumers to price changes. Price elasticity is calculated by dividing the percentage change in quantity demanded by the percentage change in price. Values greater than one indicate elastic demand; consumers change quantities demanded more than proportionately when prices change. Values greater than one indicate inelastic demand; consumers change quantities demanded less than proportionately when prices change.

Respond To The Following:

The short-run elasticity of demand for gasoline is estimated to be about 0.11, but the long-run elasticity is about 0.9. Explain, based on the determinants of elasticity, why the short-run elasticity is so low (inelastic), but why elasticity is far higher (though still inelastic) in the long run.