Recently,much of the western U.S.experienced a drought condition and water usage was restricted in Denver.Yet,even though most people used less water,the price of water did not drop.When the drought was declared over,the water company raised water prices.However,the residents of Denver did not use less water.Here,water is
A)price elastic.
B)price sensitive.
C)price inelastic.
D)price insensitive.
E)unitary elastic.

Question

Quizplus · Accepted Answer

The fact that the price of water did not drop when people used less of it during the drought suggests that demand for water is relatively inelastic. This is further supported by the observation that the residents of Denver did not use less water when prices were raised after the drought was over. If demand for water were price elastic (i.e. sensitive to changes in price), we would expect that higher prices would lead to lower usage.

Recently,much of the Western U