Question

The freezing cold spell at the beginning of 2010 not only increased demand for road salt, but it increased demand for gas in the UK. Usage reached 454 cubic meters; the previous record was 449m set in January 2003. The National Grid which is responsible for energy in the UK issued several warnings in a matter of days that demand could outstrip supply and asked supplier so increase the supply. The National Grid also told major gas users, such as power plants, to reduce demand.

Big generators, such as E.On, have both gas-fired and coal-fired power stations and are able to choose between the two. In total, 27 large gas users were asked to switch - 12 in the East Midlands and 15 in the North West.

Analyze and answer the following questions:

1. Illustrate the effect of the cold spell on the demand for gas using a demand curve diagram.
2. Illustrate the effect of the National Grid instructing major gas users to reduce their demand.
3. Analyze two other factors that you think influence demand for gas.
4. Do you think demand for gas is price elastic or price inelastic? Explain your reasoning.

Answer 1