CFA Practice Question

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CFA Practice Question

In the short run, the price elasticity of demand for gasoline is estimated to be about 0.11. In the long run, studies suggest that it is about 0.9. How can you best explain this difference?

A. The supply of gasoline is likely to increase in the long run.
B. Consumers will have more income in the long run.
C. Consumers are more able to make different choices given more time to adapt.
Correct Answer: C

In the short run, it is difficult to make different choices about transportation. However, in the long run, consumers can adapt to changing gas prices in a number of ways, such as in the choice of a different car or a different place to live. Thus, elasticity increases dramatically in the long run (though it is still inelastic).

User Contributed Comments 3

User Comment
warrentend1 In the long run goods become more elastic
jejasin Second law of demand
choas69 yes it is.
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