Answer: Quantity demanded will fall by 2.1% in the short-run and by 7.3% in the long-run, larger
Explanation:
[tex]Percentage change in price =\frac{2.10 - 1.90}{1.90} * 100[/tex]
= [tex]\frac{0.20}{1.90} * 100[/tex]
= 10.25%
Short-run elasticity is 0.2
Long-run elasticity is 0.7
Therefore,
[tex]percentage change in quantity in short run = 0.2 * 10.5[/tex]
= 2.10%
[tex]percentage change in quantity in short run = 0.7 * 10.5[/tex]
= 7.35%
Quantity demanded will fall by 2.1% in the short-run and by 7.3% in the long-run.
The change is larger in the long run because people can respond less easily to the change in the price of heating oil.
