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Principles of Economics | 6th Edition | ISBN: 9780538453059 | Authors: N. Gregory Mankiw
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Suppose the price elasticity of demand for heating oil is 0.2 in the short run and 0.7

Chapter 5, Problem Problems and Applications 5.3

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QUESTION:

Suppose the price elasticity of demand for heating oil is 0.2 in the short run and 0.7 in the long run. a. if the price of heating oil rises from $1.80 to $2.20 per gallon, what happens to the quantity of heating oil demanded in the short run? In the long run? (Use the midpoint method in your calculations.) b. Why might this elasticity depend on the time horizon?

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QUESTION:

Suppose the price elasticity of demand for heating oil is 0.2 in the short run and 0.7 in the long run. a. if the price of heating oil rises from $1.80 to $2.20 per gallon, what happens to the quantity of heating oil demanded in the short run? In the long run? (Use the midpoint method in your calculations.) b. Why might this elasticity depend on the time horizon?

ANSWER:

Step 1 of  3

The price elasticity of demand checks the change in quantity demand due to a change in the own price of the commodity. It is calculated as,

From the mid-point formula, lets calculate the change in price.

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