8. How does the cost of energy affect demand according to the En-ROADS model?

Question

BlackTom AI · Accepted Answer

To tackle the question, we first restate what the En-ROADS model conveys about energy price and demand dynamics.
Option 1: 'Lower costs lead to lower consumption' This suggests that cheaper energy automatically reduces consumption, but in En-ROADS, lower energy prices typically lower the economic incentive to conserve or invest in efficiency, which can actually sustain or increase consumption rather than reduce it. Therefore this statement mischaracterizes the price-elasticity relationship.
Option 2: 'Higher costs reduce emissions but increase demand' This mixes two ideas: price increases can reduce demand for energy and lower emissions, but the claim that higher costs increase demand contradicts basic economic intuition and the model’s tendency to show demand responding to price signals (higher prices usually suppress demand). Hence this option is inconsistent with standard En-ROADS pricing effects.
Option 3: 'Cheaper energy reduces incentives for efficiency and increases demand' This aligns with the model’s behavior: when energy becomes cheaper, there is less financial motivation to invest in energy efficiency, which can lead to higher overall energy consumption as users use more energy services since the marginal cost of use is lower.
Option 4: 'Prices have no measurable impact on demand' This option incorrectly asserts that price changes do not affect demand; in En-ROADS (and energy economics in general), price is a key driver of demand through price elasticity and investment in efficiency. Therefore this statement is inaccurate.

In summary, the options that claim lower costs decrease consumption, or that prices have no impact, conflict with established price-sensitivity mechanisms in the En-ROADS framework. The option that correctly reflects the model’s depiction is that cheaper energy reduces the incentive to pursue efficiency, which can lead to higher demand. This explanation highlights the core idea that price signals influence both consumer behavior and investment decisions, shaping overall energy demand.

MGMT 297 03 Readiness Quiz- Renewables, Nuclear, & Zero Carbon

8. How does the cost of energy affect demand according to the En-ROADS model?

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