What’s the PED of Petrol then?

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?


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