Question

In the United States, the long-run elasticity of oil demand has been estimated at -0.5. Somepolicymakers and environmental scientists would like to see the United States cut back on its use of oil in the long run We can use this elasticity estimate to get a rough measure of how high the price of oil would have to permanently rise in order to get people to make big cuts in oil consumption. How much would the price of oil have to permanently rise in order to cut oil consumption by 50%?​

Answer 1

The demand for oil is relatively inelastic with respect to price, given that oil has few direct substitutes. Similarly, demand for oil is relatively inelastic with respect to income in the advanced, OECD economies.

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