Question

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 – 2 Phho + 0.5 Png – TEMP, where Q is the quantity of home heating oil demanded, Phho is the price of home heating oil per unit, Png 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 price elasticity of demand for home heating oil is:

Answer 1

Answer:

The price elasticity of demand for home heating oil is-0.36

Explanation:

In order to calculate the price elasticity of demand for home heating oil we would have to use the following formula:

Elasticity of demand = (dQ/dPhho)*(P/Q)

According to the given data we have the following:

demand for home heating oil in Connecticut=Q = 20 – 2 Phho + 0.5 Png – TEMP

current price of home heating oil=$1.20

current price of natural gas =$2.0

Therefore, if Q = 20 – 2 Phho + 0.5 Png – TEMP, then:

Q=20 – 2*1.2 + .5*2 – 12

Q=6.6

Therefore, price elasticity of demand = (-2)*(1.2/6.6)

price elasticity of demand =-0.36

The price elasticity of demand for home heating oil is-0.36