Utility companies can generally price their product, a good that establishes a comfortable life-style (i.e., electricity, gas for home heating) based on the fact that the demand:
- Is relatively elastic.
- Is perfectly elastic.
- Is relatively inelastic.
- Is perfectly inelastic.
Answer(s): C
Explanation:
Choice "c" is correct. Goods that are important for a comfortable life-style would be relatively price insensitive (i.e., inelastic). For example, demand for electricity would only decrease if there were an enormous increase in price (people might then use other forms of energy - such as solar). Only goods that are absolute necessities (a theoretical example is water) have perfectly inelastic demand curves.
That is, no matter what price is charged, people will still buy the product because they need it to stay alive. Choices "a", "b", and "d" are incorrect, per Explanation for choice "c" above.