This preview shows pages 1–3. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: Microeconomics- An Introduction Back in mid-October, the price of natural gas has increased due to a gas company was forced to shut down a pipeline due to the need for repairs. This imminent shortages led to the decline in commodity prices heating as well as large benefits. Energy demand was becoming more and more because that's what time of year when consumers started to store energy in their homes to prepare for the cold winter months ahead. The four products mentioned in this article, crude oil, heating oil, gasoline and natural gas are substitutes for each other. This is because the cross elasticity of demand states that as the percentage change in quantity demanded of a good result of a one percent change in the price of a commodity. In other words, the increased demand for oil, gasoline and heating oil was the result of price increase in natural gas. As shown in the chart below, the cross elasticity of demand is a direct (positive). As the price of natural growth, the quantity demanded by the power of three products will increase. The market system works today in the price. Consumers make their decision on what to buy for the price of their desired good. Naturally, consumers will choose lowest price for a product to purchase. This is why consumers, who want heat their homes, chose to heat with natural gas substitutes (crude oil, heating oil, or gasoline) instead of natural gas, the higher priced product. The goods energy, is something that people can not go without during the winter months. If one of your shortages, which means that consumers are demanding more than the available supply is carried an increase in the price. As shown in the chart below, as supply decreases, prices increase. This means that the price is inelastic. This is because the price of the merchandise is increasing the total amount spent on the goods also increase. The price mechanism reflects the scarcity, which appears as an increased demand for good energy, (because the wish to store for the colder months ahead) with the same supply of that precious commodity that is becoming a higher price. Consumer demand for energy changes with the seasons. For example, the energy demand in summer is probably very low. Energy demand in the fall will be greater because consumers begin to store for winter. And during the winter months, the demand is high, where as during the spring months the demand decreases from the other months. This product is heavily influenced by the climate and type of consumers living area, for example, people in Florida do not have the same type of energy bills as the people of Pennsylvania do. The market for a commodity is determined by many factors, one of these is the the nature of commodity prices, which is influenced by the demand for individuals who raw materials. Of goods, energy consumers can see that the quantity demanded is very sensitive to price changes. And factors as climate and the region in which live the basis of market demand curve for this product. live the basis of market demand curve for this product....
View Full Document
- Winter '09