Why do long-run elasticities of demand differ from short-run elasticities? Consider two goods: paper towels and televisions. Which is a durable good? Would you expect the price elasticity of demand for paper towels to be larger in the short run or in the long run? Why? What about the price elasticity of demand for televisions?
The long-run elasticities of demand differ from short-run elasticities because of the different degrees of flexibility in consumer behavior and market adjustments over time. In the short run, consumer behavior is relatively inflexible as people may need time to adjust their consumption patterns, find substitutes, or change their preferences. In the long run, consumers are more adaptable, and market adjustments, such as changes in production capacity or entry of new firms, are more likely to occur.
Out of the two goods mentioned, paper towels are a consumable good, whereas televisions are durable goods. Consumable goods are typically used up or depleted within a short period, such as food or toiletries, whereas durable goods, like televisions, can be used repeatedly over an extended period.
In the short run, the price elasticity of demand for paper towels would generally be smaller compared to the long run. This is because in the short run, consumers' choices for alternatives might be limited, and they may not have enough time to respond to price changes. Even if the price of paper towels increases, consumers might continue to purchase them because they are considered necessities.
In the long run, consumers have more time to adjust their behavior, find substitute products, or even change their preferences. If the price of paper towels increases over the long run, consumers may become more price-sensitive and seek cheaper alternatives, reducing their demand for paper towels. Therefore, the price elasticity of demand for paper towels would typically be larger in the long run.
For televisions, the price elasticity of demand could also vary depending on the market conditions and consumer preferences. However, compared to paper towels, televisions are relatively expensive and have longer lifespans. Therefore, consumers may not purchase televisions frequently, and changes in their prices might have a smaller impact on consumption decisions in both the short run and the long run. Consequently, the price elasticity of demand for televisions is likely to be lower compared to paper towels in both time horizons.
It's important to note that these are generalizations, and the actual price elasticity of demand for any good can vary depending on specific market conditions, consumer behavior, and other factors.