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, the elasticity of both demand and supply is typically higher in the long run compared to the short run, as consumers and producers have more time and flexibility to adjust their behavior and production processes in response to price changes in the long run, resulting in a more elastic response.

Step-by-step solution

Define Elasticity of Demand and Supply

Elasticity measures the responsiveness of one variable when another variable changes. In this context, we are looking at how the quantity demanded or supplied changes with respect to price. Price elasticity of demand (PED) refers to the responsiveness of the quantity demanded to a change in price, while price elasticity of supply (PES) refers to the responsiveness of the quantity supplied to a change in price.

The Short Run vs. the Long Run

In economics, the short run and long run are distinct time periods with different characteristics. The short run is a time period where at least one factor of production is fixed, such as capital or production facilities. This implies that producers cannot fully adjust their production to changes in prices in the short run. The long run, on the other hand, is a time period where all factors of production can be adjusted, allowing firms to react more flexibly to price changes.

Elasticity of Demand in the Short Run and Long Run

The price elasticity of demand in the short run tends to be less elastic than in the long run. In the short run, consumers may not have enough time to alter their consumption habits or find substitutes when prices change. For example, if the price of gasoline increases, it might be difficult for people to immediately switch to public transportation or buy a more fuel-efficient vehicle. In the long run, however, consumers can adjust their habits and preferences, leading to a higher elasticity of demand.

Elasticity of Supply in the Short Run and Long Run

The price elasticity of supply in the short run is usually lower than in the long run. In the short run, firms face fixed factors of production, making it difficult for them to adjust their production levels in response to price changes. For example, a factory cannot be built overnight in response to a sudden increase in demand. In the long run, firms can adjust their production facilities and inputs, allowing them to be more responsive to price changes.

Concluding the Elasticity Comparison

In conclusion, we would generally expect the elasticity of both demand and supply to be higher in the long run compared to the short run. The reason behind this is that consumers and producers have more time and flexibility to adjust their behavior and production processes in response to price changes in the long run, leading to a more elastic response.