Suppose that, in an attempt to entice citizens to conserve energy, the governmen

Question

Suppose that, in an attempt to entice citizens to conserve energy, the government enacted regulations requiring that all air conditioners be more efficient in their use of electricity. After this regulation was implemented, government officials were then surprised to discover that people used even more electricity than before.

Which of the following statements best explains how this increase might have occurred?

A The government ignored the possibility that the demand curve for electricity might be upward sloping. B There is no way the observed change could have occurred if all consumers were fully informed, self-interested, and rational. C In practice, people often pay little attention to the relevant costs and benefits when deciding how much of a good, like electricity, to use. D Because the regulation effectively reduced the price of cool air, consumers with sufficiently elastic demand might have bought substantially more of it.

Explanation / Answer

Answer)

D- Because the regulation effectively reduced the price of cool air, consumers with sufficiently elastic demand might have bought substantially more of it.

What government officials failed to take into account was that people don’t demand electricity for its own sake, but rather as a means to accomplish other ends such as producing cooler air for their homes. By requiring people to buy more efficient air conditioners, the government effectively reduced the price of buying cooler air. If the demand for cool air is sufficiently elastic with respect to its price, people may buy more of it than before that they end up using even more electricity.

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