Assume a new nuclear power plant wishes to raise consumers’ electrical rates to cover the unexpectedly high cost of construction. However, the government regulatory commission refuses to let electrical rates be increased because they say it will only worsen the power plant’s financial problems. We can conclude thatThe power plant is arguing that the demand for elasticity is elastic, whereas the government is arguing that it is inelastic.The power plant should increase its electrical rates if the demand for electricity is elastic.The power plant should decrease its electrical rates if the demand for electricity is inelasticd. The demand for electricity must be unitary elastic

(As per company policy we are only supposed to answer 1 question per session up to 3 sub parts sorry for inconvenience caused) Elasticity of demand is the measure of change in the quantity demanded for a product when there is change in its prices.If the elasticity of demand is more elastic that means a change in prices leads to larger fluctuation in quantity demanded, thus if prices increase there will be greater reduction in the quantity demanded, if prices fall there will be more than proportionate increase in the quantity demanded. If the elasticity of demand is less elastic it means that an increase in the prices will have less than proportionate effect on the quantity demanded, that the demand for the product will remain stable irrespective of its prices. From the above understanding we can conclude that 1. The statement that the power plant is arguing that the demand for elasticity is elastic, whereas the government is arguing that it is inelastic is false, in fact its the opposite that the power plant is arguing that the demand is inelastic and that increase in the prices will not affect its demand, where as the government is arguing that demand is elastic and increase in price will hurt the demand for the power plant 2. The statement that the power plant should increase its electrical rates if the demand for electricity is elastic is false, instead the power plant should increase prices when the demand is inelastic 3. The statement that the power plant should decrease its electrical rates if the demand for electricity is inelastic is False, when the demand is inelastic the power plant will benefit by increasing prices of electricity.

Answered: Assume a new nuclear power plant wishes…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assume a new nuclear power plant wishes to raise consumers’ electrical rates to cover the unexpectedly high cost of construction. However, the government regulatory commission refuses to let electrical rates be increased because they say it will only worsen the power plant’s financial problems. We can conclude that

The power plant is arguing that the demand for elasticity is elastic, whereas the government is arguing that it is inelastic.
The power plant should increase its electrical rates if the demand for electricity is elastic.
The power plant should decrease its electrical rates if the demand for electricity is inelastic

d. The demand for electricity must be unitary elastic

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