The government heavily subsidizes the production of ethanol to encourage the purchase of ethanol over oil, a less environmentally friendly form of energy. Given that the supply elasticity of ethanol, ?, is estimated to be about 0.13, what would the elasticity of demand, ?, have to be for consumers to receive at least half of the subsidy, and therefore encourage ethanol consumption?
A) ? must be less than |0.13|.
B) ? must be greater than |0.13|.
C) ? must be more inelastic than the elasticity of supply.
D) Both A and C.
D
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