You’ve seen that the demand curve for petrol is inelastic (steeply sloping) – it’s an economist’s fave example for demonstrating this. Whilst there are many issues attached to this market, one question that is generally left hanging is: Just how inelastic is the demand for petrol?
Researchers at the University of California, Berkeley, have conducted a study which suggests that for some products its worth thinking about short- and long-run demand and their associated elasticities. And whether and why there might be a difference. Petrol just so happens to be a good example. In the long run, the demand for petrol averages out at -0.31. A steeply sloping demand curve, yes? But in the short-run the estimate is -0.09. Very nearly perfectly inelastic!
Can you think why?