Answer to Question #305199 in Microeconomics for mamalee

Question

d) The same deputy minister of finance indicated that based on their research, after a

while mobile money customers will return to their respective service:

“The research we did also told us that there will be about 24 per cent attrition rate in the three months to six months that we will introduce it. The same research told us what should be done to bring back these people after a while, and we have all these things in place” Suppose that the 3-6 months constitute short-run and any period after that constitutes long-run. Based on the minister’s statement, is the demand for mobile money services more or less elastic in the short-run compared to the long-run? Is this consistent with what we learned about elasticity in this class? Explain.

Answer 1

Elasticity of demand - the change in demand for this product under the influence of economic and social factors associated with changes in prices. Demand can be elastic if the percentage change in its volume exceeds the decline in prices, and inelastic if the degree of decline in prices is higher than the increase in demand. Economists use the concept of price elasticity to determine the sensitivity of consumers to changes in product prices.

Market demand in the short term tends to decrease elasticity, and in the long term - to increase elasticity