Suppose that the short run price elasticity of demand for oil is -0.26. Which of the following could explain why the price elasticity of demand for oil is low?
A) There are few alternatives to oil.
B) Firms consume less energy than before.
C) There are only a few suppliers of oil.
D) Oil is an inferior product.

Question

Quizplus · Accepted Answer

The low price elasticity of demand for oil (-0.26) suggests that consumers' demand for oil does not change much with price changes. This can be explained by the lack of close substitutes for oil, making it difficult for consumers to switch to other sources of energy when oil prices increase, hence choice A is correct. Choices B, C, and D do not directly relate to the concept of price elasticity of demand.

Suppose That the Short Run Price Elasticity of Demand for Oil