El Niño wind patterns affected the weather across the United States during the winter of 1997-1998.Suppose the demand for home heating oil in Connecticut is given by Q = 20 - 2P_hho + 0.5P_ng - TEMP,where Q is the quantity of home heating oil demanded,P_hho is the price of home heating oil per unit,P_ng is the price of natural gas per unit,and TEMP is the absolute difference between the average winter temperature over the past 10 years and the current average winter temperature.If the current price of home heating oil is $1.20,the current price of natural gas is $2.00,and the average winter temperature this year is 40 degrees compared to 28 degrees over the past 10 years,the TEMP variable tells us that: A) each 1-degree increase in temperature over the normal average raises home heating oil sales by 1 unit. B) each 1-degree increase in temperature over the normal average lowers home heating oil sales by 1 unit. C) the average daily temperature has no impact on the sales of home heating oil. D) the average daily temperature has an impact only on the sales of natural gas. E) price elasticity of demand for home heating oil is 2.

Question

Quizplus · Accepted Answer

The TEMP variable represents the absolute difference between the average winter temperature over the past 10 years and the current average winter temperature. Therefore, if the current average winter temperature is 40 degrees compared to 28 degrees over the past 10 years, TEMP would be 12 degrees. The equation shows that an increase in the TEMP variable leads to a decrease in the quantity of home heating oil demanded, indicating that a 1-degree increase in temperature over the normal average would lower home heating oil sales by 1 unit. Therefore, the correct choice is B.

El Niño Wind Patterns Affected the Weather Across the United