Consumption Decisions in the Short Run and the Long Run

The main reason most consumers are unable to respond very quickly to an increase in gasoline prices is because there is not an effective substitute for automobile travel. However, if consumers were convinced that gasoline prices were going to continue to rise into the foreseeable future, they would gradually make changes to their lifestyles so that they are able to reduce gasoline consumption significantly. They could purchase more fuel-efficient cars or cars that use an alternative fuel, or they could change jobs or change residences so that they are closer to their places of employment, shopping, and such.

Economists distinguish short-run decisions from long-run decisions. A consumer decision ...

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