Electricity accounts for almost 20% of the cost of making steel. A 10%

Electricity accounts for almost 20% of the cost of making steel. A 10% increase in electricity prices results in steel firms decreasing production and thereby demanding 5% less electricity. Over many years, technological innovations can change the way steel firms make steel and reduce the industry’s energy requirements. This suggests that the steel industry’s short-run elasticity of demand for electricity is probably

A) less than one in absolute terms in the short run.
B) less than its long-run elasticity of demand for electricity.
C) Both A and B above.
D) Neither A nor B above.

ANSWER

C