Assume you have modeled the short run price elasticity of gasoline demand. Policy makers are likely...
Assume you have modeled the short run price elasticity of gasoline demand. Policy makers are likely more interested in the long run elasticity. We think drivers may respond differently to short run price changes compared with long run changes. List specific actions drivers may take in the short-run to respond to price changes. List specific long-run responses drivers may take.
Homework Answers
Gasoline is a good of necessity that can be avoided at least in long run.
In short run of prices goes down, demand will shoot up. But if the prices go really up, drivers will most likely go on strike and give up on their work because as gasoline has no close substitutes that can not replaced.
In long run, Both the suppliers and the drivers will have to come a price of agreement as, neither suppliers can go without demand nor the drivers can completely leave their occupation. Also, the reduction that will happen in prices( if they were increased) will be the result of lower demand causes by drivers.
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