In an attempt to induce citizens to conserve energy, the government enacted regu
ID: 1205179 • Letter: I
Question
In an attempt to induce citizens to conserve energy, the government enacted regulations requiring all air conditioners to be more efficient in their use of electricity. After this regulation was implemented, government officials were the surprised to discover that people used even more electricity than before. Using the concept of price elasticity, which of the following statements explains how this could happen. Circle all that apply. Hint: You must graph the market for Cold Air in order to make a reasonable conclusion.
A. The DEMAND for cold air must have increased as the “price” of another degree of cooler air decreased with a more efficient air conditioner.
B. ALL Individuals must have responded to the change in the “price” to produce cold air by lowering their thermostats significantly.
C. The DEMAND for cold air must be elastic and the “price” for another degree of cooler air decreased.
D. The DEMAND for cold air must be inelastic and the “price” for another degree of cooler air decreased.
E. The increase in the quantity demanded for cold air must have overpowered the efficiency gains from the newer air conditioners.
Explanation / Answer
E. The increase in the quantity demanded for cold air must have overpowered the efficiency gains from the newer air conditioners.
Explanation:
By inducing citizens to conserve energy, governmentwill effectively reduced the price of the more efficient air conditions. If the demand for the air conditions is sufficientlyelastic with respect to price (highly sensitive to the price change), then, people will switch to and buy more of the“more efficient air conditions” than before (since government has reduced the price of it).In other words, It is now cheaper to run an air conditioner, so people run them more frequently. Thus, end up using more electricity.
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