Question

The following questions deal with the market for electricity. In column I, answer with the following key:

A: equilibrium price increases

B: equilibrium price decreases

In column II, answer with the following key:

A: equilibrium quantity increases

B: equilibrium quantity decreases

Col. I    Col. II

_____     ____   1. The population increases.

_____     _____ 2. The price of natural gas increases (natural gas and electricity are substitutes).

_____     _____ 3. The price of coal decreases (coal is an input in producing electricity).

_____     _____ 4. Consumer incomes fall (electricity is a normal product).

_____     ____   5. Taxes are increased on electrical utilities (electrical utilities are firms that produce electricity).

_____    ____    6. It is Summertime, and there is a seasonal increase in the demand for electricity because of air conditioning.

____     ____     7. A negative supply shock hits the electricity market.

____     ____     8. Subsidies are reduced to electrical utilities.

____     _____    9. A new technology makes it cheaper to produce electricity.

____     _____   10. Consumer tastes and preferences switch from wanting to use electricity to wanting to use natural gas.

Answer 1

1 The population increases. the equilibrium price will increase and equilibrium quantity will also increase.

2 The price of natural gas increases (natural gas and electricity are substitutes). the equilibrium price will increase because as natural gas is a substitute, people will start to demand more of electricity so the price of it will increase. equilibrium quantity will also increase.

3)The price of coal decreases (coal is an input in producing electricity) then the equilibrium price will decline and the equilibrium quantity will increase.

4) Consumer incomes fall (electricity is a normal product). then the equilibrium price will decline because the low income will make the consumers demand less of it. the equilibrium quantity will also decline.

5)Taxes are increased on electrical utilities (electrical utilities are firms that produce electricity). then the equilibrium price will increase and the equilibrium quantity will decline.

6)It is Summertime, and there is a seasonal increase in the demand for electricity because of air conditioning the equilibrium price will increase and the equilibrium quantity will decline as in short run they cannot increase the quantity.

7) A negative supply shock hits the electricity market. the equilibrium price will increase and the equilibrium quantity will decline.

8) Subsidies are reduced to electrical utilities. then the equilibrium price will increase and the equilibrium quantity will increase.

9)A new technology makes it cheaper to produce electricity.then the equilibrium price will increase and the equilibrium quantity will increase.

10) Consumer tastes and preferences switch from wanting to use electricity to wanting to use natural gas. then the equilibrium price will decline and the equilibrium quantity will also decline.