Why this heppen in gasoline industry?

Question

The short-run elasticity of demand for gasoline is estimated to be about 0.11, but the long-run elasticity is about 0.9. Explain, based on the determinants of elasticity, why the short-run elasticity is so low (inelastic), but why elasticity is far higher (though still inelastic) in the long run.

Answer 1

Your detriments of gas are expectations, tastes/preferences and substitutes/complements.

Short term gas prices are inelastic because you have to go on with your life plans and can't do much to cut consumption without long term decision making. You drive your kids to practice in your gas guzzling SUV. Will you see it as safe to let them walk? (No - eye roll) You've already made summer road trip plans, so too late to change them. You also look at it as short term. The gas prices will go down when the war is over, or when they fix the hurricane damaged oil rigs, etc.

If prices stay high for too long, your expectations change. You buy a economy car instead and maybe the kids car pool to practice. Maybe a few more people take transit to work instead of driving, - but only if your city has good transit, you plan next year's road trip vacation a little closer to home

Generally, we complain a lot about gas prices, but do little about them. You still have to go to work. What can you substitute for gas? Very little. You can change the car as a complement, but that is a big expensive change.