15.3 Elasticities: short and long term

Supply and demand are more elastic in the long term than in the short term. An identical shock in the long term leads to stronger quantity- but lesser price- adjustments than in the short term. In the above graph, a supply shock is illustrated that shifts the supply curve in both fields by the same value parallelly up or down.
Options for reaction are more limited in the short term than in the long term. In the short term, the possibility to switch to alternatives or to change demand or production is less than in the long term. Drivers, for example, can hardly avoid the petrol price rises before holidays and vacations. They have to refuel if they want to drive. In the long term, however, it is easier to reduce the consumption of gasoline by carpooling, using public transport or even moving to another apartment. The permanent costs of cars and fuel amortize the one-time costs of moving or organizing the carpool the sooner, the longer the period under consideration. The quantity reaction to a price change is thus the larger the longer the considered period is. The supply or demand curve is more elastic in the long term than in the short term.

(c) by Christian Bauer
Prof. Dr. Christian Bauer
Chair of monetary economics
Trier University
D-54296 Trier
Tel.: +49 (0)651/201-2743
E-mail: Bauer@uni-trier.de
URL: https://www.cbauer.de