Question

Suppose that in an attempt to induce citizens to conserve energy, the government enacts regulations requiring all air conditioners to be more efficient in their use of electricity. After the regulation was implemented, government officials were surprised to discover that people were using even more electricity than before. How is this possible?
(A) Because the regulation effectively reduced the price of cool air, consumers with sufficiently elastic demand might have bought substantially more of it.

(B) There is no way the observed change could have occurred if all consumers were fully informed, self-interested, and rational.

(C) The government ignored the possibility that the demand curve for electricity might be upward sloping.

(D) In practice, people often pay little attention to the relevant costs and benefits when deciding how much of a good, like electricity, to use.

Answer 1

Answer:

(A) Because the regulation effectively reduced the price of cool air, consumers with sufficiently elastic demand might have bought substantially more of it.

Explanation:

If the demand for energy services remains constant, improving energy efficiency will reduce energy consumption and carbon emissions. However, many efficiency improvements do not reduce energy consumption by the amount provided by simple engineering models. This is because they make energy services cheaper and therefore increases the consumption of those services.

For example, since low-fuel vehicles make travel cheaper, consumers can choose to drive further, thus offsetting some of the possible energy savings. Similarly, an extensive historical analysis of improvements in technological efficiency has conclusively demonstrated that improvements in energy efficiency were almost always overcome by economic growth, which resulted in a net increase in resource use and associated contamination.