Elasticity depends on how long people have to respond. In the short run, buyers and sellers are limited by habits, contracts and existing capacity. In the long run, they can change them, so the response is usually larger.
This lesson builds on revenue and elasticity. It is the explanation skill in elasticity, and exam questions ask for it in words rather than numbers.
Why does time change the response?
For demand, time allows:
- finding a substitute, such as another brand or another transport mode,
- changing habits and routines,
- replacing durable equipment, such as a gas cooker or a vehicle.
For supply, time allows:
- expanding a factory or farm,
- hiring and training workers,
- bringing new producers into the market.
The idea is simple. More time means more options. More options mean a bigger percentage response to the same price change.
Worked example
Pulau Mutiara is a fictional island. Its fuel price rises by 20%.
Month one: quantity demanded falls by 4%. PED = −4 ÷ 20 = −0.2. Residents still need to commute and cannot change vehicles overnight.
Year three: the quantity demanded has fallen by 16% in total. PED = −16 ÷ 20 = −0.8. Households have moved to smaller vehicles, shared lifts and a new ferry-linked bus route.
Both values are inelastic, but the long-run value is four times as large.
For supply, a fictional rambutan farm sees price rise 10%. After one month, output rises 3%, so PES = 3 ÷ 10 = 0.3. After three years, new trees are bearing fruit and output has risen 12%, so PES = 12 ÷ 10 = 1.2.
The mistake to watch for
A common slip is to give a time-based answer without saying what changed.
Mistaken answer: “Demand is more elastic in the long run because there is more time.”
The student repeated the question. No reason is given, so the answer earns little.
Better: “In the long run, island residents can buy smaller vehicles and use shared transport. So quantity demanded falls by a larger percentage than the price rise”. Name the substitute or adjustment linked to the product.
Check yourself
1. A fictional city raises bus fares 25%. In one month ridership falls 5%. After two years it has fallen 20%. Find PED for each period.
Show answer
One month: −5 ÷ 25 = −0.2. Two years: −20 ÷ 25 = −0.8. Demand is more elastic in the long run.
2. Give one reason why supply of a crop that takes four years to grow is inelastic in the short run.
Show answer
Farmers cannot increase output until new plants mature, so they can only respond using existing trees. Quantity supplied rises by a small percentage when price rises.
3. A student says, “Salt demand will be very elastic in the long run.” Give a reason this may not be true.
Show answer
Salt has no close substitute and takes a small share of spending, so households may not change their buying even over a long time. Demand can stay inelastic.
Where this leads next
The final lesson, avoiding comparisons of incompatible elasticities, looks at how the method and time period affect what you can compare. The elasticity tutor and the ratios tool help check your figures.
Turning a reason into a sentence that scores is a skill we practise in online one-to-one Economics tuition.