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Homework answers / question archive / 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
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?
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.
The answer is C. The total electricity depends on both how intensively people use air conditioning as well as the energy efficiency of the air conditioning unit. When energy-efficient air conditioning becomes cheaper, the implicit price per one degree of lower temperature is lower now. If demand is elastic, then individuals would respond by turning on the air conditioning more often. This increase in use of air conditioning more than offsets the reduction in energy used by the air conditioning unit. Therefore, total electricity consumption goes up.
