Posted by admin | Posted in Green Energy | Posted on 19-06-2009
Tags: "wind, energy, environment, sustainability, technology
Demand is MORE elastic for which of the following?
Demand for electricity today or demand for electricity 5 years from now?
I understand that electricity is inelastic because it is a necessity, but there are so many factors that could affect the demand in the future. Population and alternative energy sources are two examples. In a market perspective, if say, energy produced from solar and wind power increased, wouldn’t the competition cause the electric companies we pay now to experience a decreased hold on the market? Then, if the electric companies raised their prices, demand could decrease, making electricity in that sense more elastic. But no matter what, any source would be generating power. The overall demand would increase with population growth, but what about these other factors?
Demand for electricity 5 years from now would be more elastic. As of right now, there is nearly no popular alternative for electricity, therefore when the price changes people MUST continue using it. 5 years from now though there could be cheaper alternatives, so it would become a more elastic good.
***DO NOT TRY TO THINK OF CHEAPER ALTERNATIVES TODAY BECAUSE EVEN IF THEY DO EXIST THAT IS NOT WHAT THE QUESTION IS ASKING.
The key is to not over think the question.
***REMEMBER–CETERIS PARABUS (Hold all else constant)
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