Explain the time dimension as it relates to elasticity. Be sure ...

[krzymel]

Explain the time dimension as it relates to elasticity. Be sure to include in your answer the difference in elasticity between the short run and the long run.
 
  What will be an ideal response?

Question 2

AirTran, JetBlue, Southwest Airlines and Sun Country Airlines are generally referred to as low-cost airlines.
 
  Why might this type of industry be used as an example of a contestable market? Can you think of any reasons why this might not be a good example of a contestable market?

[nmyers]

Answer to Question 1

In the short run consumers often don't have as many choices available to them when prices change. Therefore demand for most goods tends to be inelastic in the short run or at least less elastic then they would otherwise be with the passage of time. In the longer run, demand is likely to become more elastic, or responsive, simply because households make adjustments over time and producers develop substitute goods.

Answer to Question 2

Entrants have the possibility of leasing aircraft and should be able to respond to high profits by quickly entering and exiting. There may be entry/exit barriers in the form of terminal leases, availability and predatory pricing by incumbents, signaled through built-in overcapacity which may make this a weak example of a contestable market.