Answer to Question #207712 in Microeconomics for SDA

Question

Supposed that price elasticity of demand for electricity of -1.14. Explain what this means with a numerical example. Does this number seem large? Do you think this is a short- or long-term elasticity estimate? How might this estimate be important for owners of electric utilities or for bodies that regulate them

Answer 1

It means that a percent increase in price causes the quantity demanded of electricity to fall by 1.14 percent. It further implies that the demand for electricity is relatively elastic.