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Analysis for Price Hike of Electricity and Gas代寫

Analysis for Price Hike of Electricity and Gas
After reading the article titled "Electricity and gas prices to jump 18pc in SA", we can gain the information about price tendency of electricity and gas in the future, likely causes for this phenomenon and available solutions to the price hike for people. From the perspective of three different sections in directions, I would like to give my own ideas and analysis, which will be substantiated by the following statements.
 
1.      Possible reasons and influence on consumers
As Commission chief executive Paul Kerin said, carbon tax and cost of feed-in tariffs may be the fundamental reason for increasing price of electricity and gas. In other word, the cost hike of raw material has made electricity and gas more expensive inevitably. Besides, SA Opposition energy spokesman Mitch Williams mentioned that the price hike may be attributed to South Australia's questionable focus on developing green power sources, which means that higher price is partly due to increasing research grant for developing green power sources.
 
As for the impact of price hike on people, we had better to consider about income effect. An increase in price declines the purchasing power of real income, so those people whose incomes are not growing will suffer from the price hike. Besides, according to demand and supply model, there is some inverse correlation between the price and quantity demanded. When the price has increased, it will break the previous equilibrium, and higher price will match less quantity demanded. Therefore, they will decrease the use of electricity and gas. As for people whose incomes are growing, while the growing rates are not beyond the increasing rates of power price, they will also not buy more electricity and gas.
 
However, the impact might not be so obvious because there is a way for people to seek support and ease their bills, as Mr Kerin said. To some extend, 15 percent discounts offered by retailers will offset the price hike. The more important is that electricity and gas are necessities for us that we use them almost anywhere and anytime. Therefore, people may search for ways to save energy, but they will not decrease the use of electricity and gas drastically.
2.      Discussion about elasticity of demand and “Price elasticity of demand”
 
 
According to analysis above, it could be concluded that the demand for electricity and gas will not change a lot as the price of them alters. Therefore, it could be predicted that the demand curve of electricity and gas is almost vertical, which means that the demand is inelastic.
 
As for determinants of the “the price elasticity of demand”, it seems proper to analyse this problem from these aspects:
 
a.       Substitutability of electricity
Electricity is used to keep electrical appliances working, and there is almost no other available type of source to substitute electricity. Therefore, people still have to pay for electricity although they have to spend more.
 
b.      Utilization range of electricity
As the development of technology, there are so many electronic products in daily life that these products all need enough electricity to keep working. The only purpose that we use electricity is to use electronic products. Therefore, we can not decrease the use of electricity.
 
c.       Necessity of electricity for people
Unlike luxuries that we may not often buy them, electricity is necessity for us, such food and water. Therefore, we have to pay for electricity although the price is increasing.
 
d.      Expenditure percentage
 Although we almost use electricity all the time, the money we spend on electricity is not much actually when compared to other expenditure. If we list the expenditure for everything we pay for in daily life, we will find that the expenditure of electricity just takes a very small proportion.
 
e.       Durability of electricity
Electricity is inexpensive but consumable. Unlike clothing that we bought one and we can wear that for a long time if it were not worn out, electricity will be run out in a short time, and we have to pay more to get it.
 
For electricity retail distributers, the total revenue will increase because of the price hike. According to the formula (TR= P *Q ) and the conclusion that the demand for electricity and gas is inelastic, the total revenue will increase.
 
3.      Likely impact of government intervention on the market
In order to figure out the impact of price ceiling, we can draw a graph first.

If government has determined to interfere the price of electricity and put a price ceiling on the price, it will broke the market equilibrium and decrease the price to the legal price ceiling.
It should be confessed that the policy of price ceiling is a double-edged sword for electricity market in South Australia. As for advantages, lower price of electricity means that people could pay less than that in the free market. Therefore, people could save more money and spend on other significant things. In other word, the price ceiling may improve the quality of life for people. For government, price ceiling is the policy that could control the price of goods or service quickly and effectively to achieve the macro-control objectives.
 
However, we can not ignore the drawbacks of government's maximum pricing policy. Firstly, this policy would damage the freedom of commodity circulation and the function of market economic system. Besides, it would weaken the enthusiasm of electricity retail distributers, for example, they would cut down distribution and promotion network and they would provide less electricity, thus leading to more serious shortage. What’s more, if people could get electricity at a lower price, they may not try to think about methods to save energy to protect the environment. In the long run, this policy is not good for the environment.
 
Reference
Bade, Robin; Michael Parkin (2001). Foundations of Microeconomics. Addison Wesley Paperback 1st Edition.
Bouman, John (2011) . Columbia, Maryland,
Colander, David (2008). Microeconomics. McGraw-Hill Paperback, 7th Edition
McGuigan, James R.; Moyer, R. Charles; and Frederick H. Harris. (2001) Managerial Economics: Applications, Strategy and Tactics. South-Western Educational Publishing, 9th Edition
 
 
 
 
 

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