A large increase in gas prices creates a demand for cars with good gas mileage. It takes months for car companys to make these cars. How do you describe this market for cars?
A. Inelastic
B. Static
I said A.Inelastic because, its a short run and the firm cannot easily change its output level. Am I right?
yes:
http://www.businessdictionary.com/definition/inelastic-supply.html
I agree.
Thank you so much i just wanted to make sure im right before i make my final choice.
WRONG. The answer is ELASTIC
Nevermind. It is INELASTIC. My bad
Static
Yes, you are correct. The market for cars in this scenario can be described as inelastic. In economics, the concept of price elasticity of demand measures the responsiveness of quantity demanded to changes in price. Inelastic demand occurs when the quantity demanded is not very responsive to changes in price.
In this case, a large increase in gas prices creates a demand for cars with good gas mileage. However, since it takes months for car companies to make these cars, the supply of such cars cannot be immediately increased in response to the increase in demand. As a result, the quantity demanded for cars with good gas mileage does not change significantly, despite the increase in gas prices.
Therefore, in the short run, the market for cars can be considered inelastic because the car companies cannot easily change their output level of cars with good gas mileage.