Answer
a) Short run--there is a 4% increase in quantity demanded, long run--there is a 14% increase in quantity demanded
b) Elasticity depends on the time horizon since consumers of heating oil have more time (in the long run) to either accept the price increase or find other sources of heat. Since there is quite a bit of a differences in the elasticities, there are also more instances for consumers to change their preferences.
Work Step by Step
a)
price elasticity of demand = percentage change in quantity demanded/percent change in price
percent change in price = (2.2-1.8)/((2.2+1.8)/2)
percent change in price = (.4)/(4/2)
percent change in price = .4/2 = 20%
elasticity = change in quantity demanded/percent change in price
$.2 = x/20$
$.2*20=x/20*20$
$4 = x$
4% change in quantity demanded
elasticity = change in quantity demanded/percent change in price
$.7 = x/20$
$.7*20=x/20*20$
$14 = x$
14% change in quantity demanded
