measure price and quantity demanded.

Applications in Government and Business

The budget constraint framework for making utility-maximizing choices offers a reminder that people can

react to a change in price or income in a range of different ways. For example, in the winter months of 2005,

costs for heating homes increased significantly in many parts of the country as prices for natural gas and

electricity soared, due in large part to the disruption caused by Hurricanes Katrina and Rita. Some people
150 6 • Consumer Choices

reacted by reducing the quantity demanded of energy; for example, by turning down the thermostats in their

homes by a few degrees and wearing a heavier sweater inside. Even so, many home heating bills rose, so

people adjusted their consumption in other ways, too. As you learned in the chapter on Elasticity, the short run

demand for home heating is generally inelastic. Each household cut back on what it valued least on the
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