Suppose that gasoline prices increase dramatically this month. Kaliah commutes 100 miles to work each weekday. Over the next few months, Kaliah drives less on the weekends to try to save money. Within the year, she sells her home and purchases one only 10 miles from her place of employment. These examples illustrate the importance of
A)the time horizon in determining the price elasticity of demand.
B)the availability of close substitutes in determining the price elasticity of demand.
C)a necessity versus a luxury in determining the price elasticity of demand.
D)the definition of a market in determining the price elasticity of demand.

Question

Quizplus · Accepted Answer

The examples illustrate how Kaliah's demand for gasoline becomes more elastic over time as she adjusts her behavior (driving less on weekends and moving closer to work) in response to the price increase, highlighting the importance of the time horizon in determining the price elasticity of demand.

Suppose That Gasoline Prices Increase Dramatically This Month