A number of towns in the US have begun charging their residents for garbage pick

Question

A number of towns in the US have begun charging their residents for garbage pickup based on the number of garbage cans filled per week. the town of chase decided to increase its per can price from 10cents to 20 cents per week. in the first week, chase found that the number of cans that were brought to the curb fell from 550 to 525 although the cans were heavier. the town economist ran the numbers, informed the mayor that the demand for disposal was inelastic and recommended that the town raise he price more to maxamize town revenue from the program. six months later, at the price of 30 cents per can, the number of cans has fallen to 125 and town revenues are down. what might have happened?

Explanation / Answer

Price elasticity of demand is a measure of how much the quantity demanded of a good responds to a change in the price of that good. Goods tend to have more elastic demand over longer time horizons. When the price of garbage pickup rises, the quantity of pickups demanded falls only slightly in the first few months because it has an inelastic demand. Over time (six months later), in response to higher prices, people find another options for throwing away their garbage.

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