gasoline price
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Free InquiryAn econometric analysis of gasoline price data provided the following demand estimates, where log represents the natural logarithm:
Short run: log Q gasoline = 5 – 0.08 log P gasoline
Long run: log Q gasoline = 5 – 0.6 log P gasoline
a. -0.08 is the short-run price elasticity of demand for gasoline. What does this mean in words?
b. Does it make sense that the long-run elasticity is different from the short-run elasticity?
c. What does this imply for the volatility of gasoline prices in the short-run vs. the long run in response to oil price shocks?
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