澳洲作业代写 Report On Rise In Electricity Pricings
The most important characteristic of a monopolist firm is barriers to entry hence the firm becomes a price maker. SP is a monopolist firm with strong barriers of entry to prevent new firms from entering the market. This gives SP a substantial market power. With the market power, SP is a price maker as it has the ability to change the pricing of electricity. “From July 1 to Sept 30, electricity will cost 2.42 per cent more, electricity retailer SP Services announced yesterday. “(Teo, 2010). This shows that SP Services have the ability to change the pricing of electricity by announcing it to the public. In addition, although SP is a price maker, the stability of the prices is still being monitored and controlled by Energy Market Authority (EMA).
Short Run and Long Run
In the short run, a monopolist firm may experienced an economic loss. It could be due to the rising costs of production or the falling of quantity demanded. Therefore the firm is needed to raise its prices as well as its level of output in order to achieve a normal profit or maximum profit in the long run. As in this case, SP is experiencing an economic loss due to the rising costs of production. If this loss suffered by SP continue, SP may have to shut down its business.
2.2Â Â Â Changes in Market Equilibrium
The change in of both price and quantity equilibrium of electricity are due to the increasing demand and decreasing supply of electricity. This results in an increase in price equilibrium while quantity equilibrium remain the same
The decrease and increase of demand and supply curve is due to the few determinants of demand and supply which caused the curve to shift.
Demand of Electricity
This shows that the increase in demand is due to the improved economic activity hence there is a rightward shift in the graph.
The improved economic activities allowed the consumers to have an increase in money income which leads to a higher purchasing power. Thus the demand of electricity increases, causing the demand curve to shift to the right. As mentioned in the article, ‘Clearly, electricity demand has been picking up because of improved economic activity’ (Lim, 2010)
This increase in demand is also due to the consumer’s expectation of the upcoming increase in price, resulting consumer to consume more electricity before the price increases. Shifting the demand curve to the right. It’s shown in “ELECTRICITY prices will rise by an average of 2.42 per cent this quarter ” (Sim, 2010)
Supply of Electricity
The price of electricity usually increases along with the price of fuel oil. Singapore used this fuel to generate electricity, thus decreasing the supply of electricity. As the supplier would prefer to sell fuel instead of electricity, this factor which caused the supply curve to shift is called substitutes in production. Â
Since the producer is more willing in producing oil, there will be a fall in electricity production, causing the supply curve to shift to the left.
The quantity supplied of oil increases, as the SP is more willing to sell it. The increase is represented by the upward movement along the supply curve.
However, the current increase in price of electricity is due to the higher costs of production. Causing the supplier to charge a higher price for every output level and a leftward shift in supply curve. It is all shown from ” While previous hikes were due to the rise in fuel oil prices, this round of increases is due to the ‘higher capital and operating costs of power generation’. ” (Sim, 2010)
The higher costs of production and the producer’s expectation has resulted a left shift in supply curve of electricity.
The decrease of supply is also caused due to the expectation of the producer. As the producers is expecting an increase in electricity, they will sell less goods, keeping it until the price increase. Which eventually caused a left shift in the supply curve.
2.3 Elasticity of Electricity
The increase in price of electricity have affected everyone’s’ daily life. Even with the raise in price, consumers are unable to cut off the usage of electricity as it has become a necessity to them. Hence it is price inelastic as well as income elastic towards a higher income families, this is shown in the article, “Their higher salaries will probably offset the higher electricity prices “(Teo, 2010)
However for those lower income families, electricity is both price elastic and income inelastic as they have to reduce the usage of electricity to minimum as the income spend on it is greater compare to those who earned more.
澳洲作业代写 Report On Rise In Electricity Pricings