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For many products, demand is more elastic from the price for a long rather than a short period. One of the reasons is that it takes time for people to change their consumer habits. For example, even if coffee prices rise sharply, the required amount will decrease only gradually since consumers will not drink less coffee immediately. Another reason is that the demand for one product may be related to the stock of another product from consumers, which changes more slowly (Levin et al., 2022). For example, the gasoline demand is much more elastic for an extended period. A sharp increase in the price of gasoline reduces the quantity requested in a short course due to fewer trips.
However, it considerably impacts the demand for cars, forcing consumers to purchase subcompact and fuel-efficient cars. However, replacing old cars with new ones takes a long time, and the amount of gasoline required decreases slowly. Note that the elasticity in the short term is much greater than in the long term (Levin et al., 2022). For most products in the long term, the supply is much more flexible from the price than in the short term. Firms face production capacity constraints in a short time frame and need time to expand their production capabilities.
The control of gasoline prices will directly impact the population, as manufacturers and service providers will incorporate the increase in production costs, transport, and logistics into the final cost. Limiting how much corporations can charge will disrupt markets, producing shortages and increasing supply chain issues while only cutting inflation slightly (Guenette, 2020). Capping pricing encourages businesses to create fewer product units while increasing their appeal to customers. As supply decreases and demand rises, shortages will inevitably occur.
References
Guenette, J. D. (2020). Price controls: Good intentions, bad outcomes. World Bank Policy Research Working Paper, 9212, 119.
Levin, L., Lewis, M. S., & Wolak, F. A. (2022). Reference dependence in the demand for gasoline. Journal of Economic Behavior and Organization, 197, 561578.
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