a. Discuss your view of elasticity of gasoline based upon the changes we have experienced during the past few years.
b. Why is the long run elasticity greater than the short run elasticity for gasoline?
c. Under what economic situations will public transportation present potential competition to private automobiles?
Before we discuss the elasticity of gasoline, let's take a look at elasticities in general.
What is meant when we say something is elastic?
If the demand of a good is elastic, it is meant that consumers are more responsive to price changes. If a good is said to be inelastic, consumers are less responsive to price changes.
In general, necessities are inelastic, because you would need them regardless of their prices. Such goods include food, clothing, medicines etc. It should be worth noting that the extreme case of inelasticity is called perfectly inelastic, and this means that your demand will not change at all regardless of price.
Luxurious goods are usually elastic, since if the price of one goes up, you have many more options to spend your many on other luxuries. Such goods. The extreme case of this one is called perfectly elastic, and this means that your demand will change to zero even if the price goes up ...
Elasticity is discussed.