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Consider the following real world elasticity coefficients***

 

  • Gasoline: short run = 0.20 & long-run = 0.70

  • Automobiles: short-run = 1.87 & long-run = 2.24

     

    a)         Tell whether each of the commodities are elastic or inelastic.  (What is the numerical clue?)  Then explain briefly why it would stand to reason that the respective commodities are elastic or inelastic.  Your justifications should include a reference to the appropriate determinant(s) of elasticity discussed in class.   

     

    b)         Each of the commodities has both a short-run and long-run coefficient.  Note that the long-run coefficient is a greater number.  Why would that be the case?