Question at position 19 Recently, much of the western United States experienced a drought condition and water usage was restricted in Denver. In an attempt to shore up reserves, the water company raised water prices. However, the residents of Denver did not use less water. Here, water demand isprice sensitive.unitary.inelastic.elastic.price fixed.

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BlackTom AI · Accepted Answer

Question restatement: The scenario describes a drought in the western U.S. with water usage restricted in Denver. To shore up reserves, the water company raised water prices, but residents did not reduce their water use. The task is to identify the correct characterization of water demand in response to price changes.

Option 1: 'price sensitive.' This would imply that demand changes a lot with price; a high price would lead to a substantial drop in quantity demanded. In the scenario, water use did not decrease significantly after a price increase, which suggests demand did not respond strongly to price. Therefore, this option is incorrect because it describes a highly responsive (elastic) demand, not what was observed.

Option 2: 'unitary.' Unitary elasticity means the percentage change in quantity demanded exactly matches the percentage change in price. The given information does not provide precise percentage changes to verify a one-for-one ratio, and what’s described is a lack of meaningful response rather than a precise proportional change. Thus this option is not supported by the evidence and is incorrect.

Option 3: 'inelastic.' Inelastic demand means quantity demanded changes little when price changes. The scenario shows that raising prices did not lead to a reduction in water use, which aligns with inelastic demand behavior. This is the correct interpretation of the situation.

Option 4: 'elastic.' Elastic demand would produce a noticeable drop in quantity demanded when price increases. Since residents did not significantly reduce water usage despite higher prices, the demand is not elastic. This makes this option incorrect.

Option 5: 'price fixed.' If the price were fixed, changes in price would not occur or would not affect quantity demanded. Here the price was raised, so the price is not fixed. Therefore this option is incorrect.

Additional context: The core concept is price elasticity of demand. When demand is inelastic, price changes (like a tax, restriction, or price increase) have only a small effect on the quantity demanded, which matches the observed behavior in Denver’s water usage during the drought. The other options either imply a strong response to price, a precise one-to-one response, or no price change at all, none of which fit what happened in the scenario.

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