Question

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

Short answer

In summary, both demand and supply are usually more elastic in the long run as compared to the short run. This is due to the presence of more time and flexibility for adjustments and adaptations to take place on both sides of the market in the long run, while short run constraints limit the responsiveness to price changes.

Step-by-step solution

Understanding Elasticity of Demand and Supply

Elasticity measures the responsiveness of one variable to changes in another variable. In the context of demand and supply, the elasticity of demand measures the sensitivity of quantity demanded to a change in price, while the elasticity of supply measures the sensitivity of quantity supplied to a change in price.

Short Run Elasticity

In the short run, both demand and supply are typically less elastic. This is because, in the short run, there are many fixed factors and constraints that cannot be changed easily. For example, a business cannot quickly expand its factory or hire new workers overnight. In the case of demand, consumers may not be able to switch their consumption patterns quickly due to habits, contracts or limited availability of alternatives.

Long Run Elasticity

In the long run, both demand and supply are more elastic, as there is more time for adjustments to take place. For example, a business can make long term plans and investments to expand their production capacity, and consumers have the time to explore and switch to alternative products or services.

Comparing Elasticity of Demand and Supply

Comparing the two, it can be said that both demand and supply are usually more elastic in the long run. In the short run, businesses and consumers face constraints and limitations that make it difficult for them to respond to price changes. In the long run, businesses can adjust their production capacity to adapt to changes in the market, and consumers have more time and options to adjust their consumption patterns.

Conclusion

In conclusion, we can usually expect the elasticity of both demand and supply to be higher in the long run than in the short run. This is because there is more time for adjustments on both sides of the market, allowing for greater flexibility and responsiveness to price changes in the long run.