Assume the demand for electricity, a necessity with few substitutes, is −0.2. If the cable company raised its rates by 10 percent, we would expect a
A)10 percent decrease in quantity demanded.
B)2 percent increase in quantity demanded.
C)10 percent increase in quantity demanded.
D)2 percent decrease in quantity demanded.
E)5 percent decrease in quantity demanded.

Question

Quizplus · Accepted Answer

Since the demand for electricity is highly inelastic (with few substitutes), a 10% increase in cable rates would lead to approximately a 2% decrease in quantity demanded (0.2 x 10 = 2%). Therefore, the answer is D.

Assume the Demand for Electricity, a Necessity with Few Substitutes