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If the price of natural gas rises, one year after the price increases is when the price elasticity of demand is likely to be the highest. The price elasticity of demand is a measurement used within economics that shows how the quantity demanded of an item can change or remain the same when only the price of the item changes.
The price elasticity of demand is likely to be highest one year after the price increase
Price elasticity of demand measures the responsiveness of quantity demanded to changes in price of the good.
Price elasticity of demand = percentage change in quantity demanded / percentage change in price
Types of price elasticity of demand
1. Elastic demand: If the absolute value of price elasticity is greater than one, it means demand is elastic. Elastic demand means that quantity demanded is sensitive to price changes.
If demand is elastic and price is decreased, quantity demanded would increase. The increase in quantity demanded would be greater than the decrease in demand and this would lead to an increase in revenue.
2. Inelastic demand : Demand is inelastic if a small change in price has little or no effect on quantity demanded. The absolute value of elasticity would be less than one
3. Unit elastic demand: Demand is unit elastic if a small change in price has an equal and proportionate effect on quantity demanded.
4. Infinitely elastic demand : It is perfectly elastic demand. Demand falls to zero when price increases
5. Perfectly inelastic demand:: It is demand where there is no change in the quantity demanded regardless of changes in price.
Price is more elastic in the long run than in the short run because consumers have more time to search for suitable alternatives. In the long run, consumers would have had more time to search for substitutes for natural gas
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