The Demand for a Certain Energy-Efficient Home Is Given by F

question 104

Multiple Choice

The demand for a certain energy-efficient home is given by f( $\mathrm { P } 1$ , $\mathrm { P } 2$ ) , where p1 is the price of the home and p2 is the price of electricity. Which of the following explains why $\frac { \partial \mathrm { f } } { \partial \mathrm { p } 2 }$ > 0?

• A) The price of electricity keeps going up due to increased demand.
• B) Homes are too expensive during energy crises.
• C) As the price of electricity goes up, demand for the home goes up.
• D) As the price of electricity increases, demand for the home depends more on the price of the home than on the price of electricity.
• E) As the price of electricity goes up, demand for the home goes down.

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Definitions:

Coase Theorem

A legal and economic theory that states that if trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property.

Taxes

Compulsory financial charges or levies collected by governments from businesses and individuals to fund public expenditures.

Negative Externalities

Costs suffered by a third party due to an economic transaction that they were not a part of.

Coase Theorem

A principle that asserts that if property rights are well-defined and transaction costs are negligible, parties will negotiate to correct externalities and allocate resources efficiently.