Question : Statement 1: Price elasticity of demand is higher in the long run compared to the short run.
Statement 2: In the long run, consumers have more time to adjust their consumption patterns and find substitutes, leading to greater price sensitivity.
Option 1: Both statements are true.
Option 2: Both statements are false.
Option 3: Statement 1 is true, and statement 2 is false.
Option 4: Statement 1 is false, and statement 2 is true.
Correct Answer: Both statements are true.
Solution : The correct answer is (A) Both statements are true.
Statement 1: Price elasticity of demand is higher in the long run compared to the short run. This statement is true. In the long run, consumers have more time to adjust their consumption patterns, find substitutes, and make changes in their purchasing decisions. This greater flexibility and freedom to make adjustments lead to a higher price elasticity of demand in the long run.
Statement 2: In the long run, consumers have more time to adjust their consumption patterns and find substitutes, leading to greater price sensitivity. This statement is also true and supports the relationship described in statement 1. In the long run, consumers have the opportunity to explore alternative options, seek substitutes, and make changes to their purchasing behavior based on price changes. As a result, their demand becomes more elastic, indicating greater price sensitivity.
Both statements accurately describe the relationship between price elasticity of demand and the long run.
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