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Article 3, Econ IA - Coggle Diagram
Article 3, Econ IA
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Background Information
Region: The United States of America, a country primarily located in North America.
Data: Increase in the overall price of heating bills for American consumers, refer to table the article table.
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Quotations
"pandemic-related economic downturn, growth in energy demand has generally outpaced growth in supply,"
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Definitions
Introduction
Demand and supply, surplus
Non-price determinants of supply, Law of demand, demand and supply, supply-side shocks
Normal, merit goods & luxury goods
The positive externality of consumption, informal markets
Body
Factors of production (Labour will eventually decrease due to decrease in profit thus wages; increase in the cost of production due to excess supply/surplus)
The elasticity of demand, inelastic demand (due to energy sources being common goods; needs)
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Externalities of consumption, disposable income
Market failure, allocative inefficiency
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Economic Theories, Analysis
(1) Supply & demand curve → Energy prices acts as a normal good → relate to non-price determinants of demand & supply (covid 19); supply-side shocks
explain why they shift and what kind of effect does it have on the price and equilibrium quantity of energy sources
PED is relatively inelastic, there are dominant firms in the market, use of economies of scale (energy production is intricate and demanding)
Market disequilibria explained → the need for a new market-clearing price
Causation: Increase in cost factors of production (i.e. labour) so decrease in supply (Leftward shift)
Increased pressure on discretionary spending/income > Income decreases (relatively) so spending for other goods decreases, decreasing growth in the circular flow model
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Evaluation 1
Relate to analysis (3): Recognise that if informal markets occur there will be a negative externality of consumption
Welfare loss
Evaluation: Black markets may be introduced > Prices greater than the previous market-clearing price
Informal (black markets), decreased market size (reduced producer surplus and community surplus), rationing (due to excess demand consumers & producers will use other means, than price, to determine who receives the products)
Evaluation 2
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Related to inelastic PED
PED is relatively inelastic, there are dominant firms in the market, use of economies of scale (energy production is intricate and demanding)
Higher price competition > Higher market competition > Non-uniform pricing of energy sources is harder to facilitate by the government.