How does the time period affect price elasticity?

We generally stick to a commodity and respond very late to the price changes. However, the elasticity of demand is high in a longer time period as our habit changes over time. We can substitute the original product if its price changes in the long run. These were the factors that affect the Price Elasticity of Demand.

How does price elasticity of demand change over time?

Time period considered: elasticity tends to be greater over the long run because consumers have more time to adjust their behavoir to price changes. Permanent or temporary price change: a one-day sale will result in a different response than a permanent price decrease of the same magnitude.

Why does passage of time increase elasticity?

The passage of time increases the elasticity of demand for many goods because: (1) time allows price to fluctuate so that consumers will get to pick the price they like. (2) time allows people to produce more of the goods. (2)demand would become more elastic and tax revenue would decline.

Why is long run elasticity of demand higher than short run elasticity?

Short run versus long run: Price elasticity of demand is usually lower in the short run, before consumers have much time to react, than in the long run, when they have greater opportunity to find substitute goods. Thus, demand is more price elastic in the long run than in the short run.

Why does the elasticity change over time?

Price elasticity of supply can be calculated by dividing the percentage change in supply by the percentage change in price. The same factors that affect the elasticity of demand affect supply elasticity, namely the availability of substitute inputs and the time needed to make changes to production.

Why might this elasticity depend on the time horizon?

Why might this elasticity depend on the time horizon? Over time, consumers can make adjustments to their homes by purchasing alternative heat sources such as natural gas or electric furnaces. Thus, they can respond more easily to the change in the price of heating oil in the long run than in the short run.

Would you expect the price elasticity of demand to be larger in the market?

You’d expect the price elasticity of demand to be higher in the market for vanilla ice cream than for all ice cream because vanilla ice cream is a narrower category and other flavors of ice cream are close substitutes for vanilla.

How do changes over time affect elasticity?

changes in the size of the population will also affect the demand for most products. -Necessities have an inelastic demand and luxuries have an elastic demand. Change over Time (Factors affecting elasticity of demand) When price changes, consumers often need time to change their spending habits.

What happens to elasticity in the long run?

When demand is elastic How will an increase in price affect total revenue?

If demand is elastic at a given price level, then should a company cut its price, the percentage drop in price will result in an even larger percentage increase in the quantity sold—thus raising total revenue.

When demand is elastic a decrease in price will?

When demand is elastic, a decrease in price will result in an increase in total revenue. When demand is inelastic, an increase in price will result in an increase in total revenue. When demand is inelastic, a decrease in price will result in an increase in total revenue.

Would you usually expect elasticity of demand to be higher in the short run or in the long run Why?