Case study

The short term versus long run demand for petrol

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 Price elasticity of demand
• A measure of the responsiveness of the
quantity demanded of a good to a change in
its price, other things remaining the same. It
is the percentage change in demand divided
by percentage change in price.
 Inelastic demand
• If the percentage change in the quantity
demanded is less than the percentage
change in price, then the magnitude of the
elasticity of demand is between zero and 1,
and demand is said to be inelastic.
• If the quantity demanded remains constant
when the price changes, then the elasticity
of demand is zero and demand is said to be
perfectly inelastic.
 Elastic demand
• If elasticity is greater than 1, it is elastic.
• If the quantity demanded is indefinitely
responsive to a price change, then the
magnitude of the elasticity of demand is
infinity, and demand is said to be perfectly
elastic.
 Change from 1973 to 1975
• Increase in price of petrol by 42.35%
• Decrease in consumption by 6.93%
• Price elasticity 0.16
 Change from 1975 to 1977
• Increase in price of petrol by 8.26%
• Decrease in consumption by 0.73%
• Price elasticity 0.08
 Change from 1977 to 1979
• Increase in price of petrol by 38.93%
• Decrease in consumption by 6.18%
• Price elasticity 0.16
 Change from 1979 to 1981
• Increase in price of petrol by 52.19%
• Decrease in consumption by 12.98%
• Price elasticity 0.25
 Change from 1973 to 1981
• Increase in price of petrol by 225.8%
• Decrease in consumption by 24.58%
• Price elasticity 0.11
 conclusion
Long term demand for petrol was
more elastic than short term demand.
Thank you