Between 1995 and 2005, the own-price elasticity of the demand for water among urban residential users ranged between a high of 0.20 in October and a low of 0.06 in December. Among urban commercial users, the own-price elasticity of demand ranged from a high of 0.17 in December to a low of 0.08 in January. (Source: David R. Bell and Ronald C. Griffin, "Urban water demand with periodic error correction,"Land Economics, Vol. 87, No. 3, August 2011, pp. 528-544.)

(a)

Are the residential and commercial demands for water price elastic or inelastic?

(b)

Do you expect the elasticities of the residential and commercial demands to be similar or different?

(c)

Explain why the own-price elasticity of the demand varies by season.

(d)

If urban suppliers of water were to raise their prices by 10%, what would be the effect on residential and commercial expenditures?