Final answer:
The price elasticity of demand for electricity is inelastic because increases in price result in only slight decreases in quantity demanded, since electricity is a necessity. The demand for luxury items, like restaurant meals, is more elastic, with larger decreases in demand for modest price increases. Energy demand becomes more elastic over the long term as consumers make more permanent changes.
Step-by-step explanation:
In economics, the price elasticity of demand refers to how sensitive the quantity demanded of a good is to a change in its price. Based on the provided information, we can infer that the price elasticity of demand for electricity is relatively inelastic because even significant price increases result in only minor changes in the quantity demanded.
This inelasticity is due to the fact that electricity is a necessity for households. On the other hand, items that are more luxury than necessity, like restaurant meals, show a price-sensitive or elastic demand, where a 10% price increase leads to a more substantial 22.7% decrease in quantity demanded.
In the short term, consumers may make small adjustments to their energy consumption by changing habits, like lowering the thermostat and wearing warmer clothes indoors. Across the economy, rising energy costs may force consumers to cut spending on other goods, thus indicating a cross-elastic effect.
However, in the long term, consumers have more options to adapt, such as buying more fuel-efficient vehicles or improving their home insulation, leading to a more elastic demand for energy over time.