Answer to Question #307229 in Microeconomics for alazar

Question

1. Suppose the good in question is alcohol. Why might the elasticity fall when the time horizon increases?

Answer 1

The price elasticity of demand varies directly with the time period. The given time period can be as shorts as a day and as long as several years. The price elasticity of demand is directly proportional to the time period.

Elasticity depends on the time horizon because there is a possibility of substitutes for alcohol in the market. It is likely that people might prefer other sources of alcohol in future in case of rise in its prices.