07. Energy Markets 2

• Study of a nation’s economy as a whole

• Focus inflation, unemployment and economic growth

• Using Macroeconomics to…

  • understand why economies grow (increasing resources, consequences of standard of living)

  • understand economic fluctuatioins (trend of rising per capita income, periods of shrinking economy)

  • make informed business decisions (manager, who studied macroeconomis has a better understanding of interest rates and inflation and their effects)

• Study of choices mady by households, firms and government, and how these can affect the markets for goods and services

• Using Microeconomics to…

  • understand markets and predict changes (studying microeconomics because of the understanding how markets work and to predict how events affects prices and quantities of products)

  • make personal and managerial decisions (personal level: decide how to spend time, spend and save money; manager: how to produce goods and services, how much produce or charge)

  • evaluate public policies (determine how well the government performs in the market economy)

= what you sacrifice to get it

The Opportunity Cost and the Production Possibilities Curve

• Shows possible combinations of products that an economy can produce, given that its productive resources are fully employed and efficiently used

• Illustrates the principle of opportunity cost for an entire economy

• Economy has fixed amount of resources; if resources are fully employed, an increase in the production of wheat at the expense of steel

  
  

Marginal benefit

= additional benefit resulting from a small increase in some activity

Marginal cost

= additional cost resulting from a small increase in some activity

Marginal principle

= increase the level of an activity as long as its marginal benefit exceeds its marginal cost —> marginal benefit is equal to marginal cost

= A voluntary exchange between two people makes both people better off

Examples

• Exchange money for a college education, college provides education for your money

• Exchange time for money in a job, employer exchanges money for your labor services

Quantitiy demanded

= amount of a product that consumers are willing and able to buy

Demand schedules

= table, that shows the relationship between the price of a product and the quantity demanded

Example Pizza Market

• Price (price of a pizza)

• Consumer’s income

• Price of substitute goods (tacos, sandwiches,…)

• Price of complementary goods (lemonade,..)

• Consumer’s preferences or tastes and adversiting, which influences

• Consumer’s expectations about future prices

Individual Demand Curve

= shows the relationship between the price of a good and quantitiy demanded by individual consumer

Law of Demand

= negative relationship between price and quantity demanded

—> higher price, smaller quantitiy demanded

Change in quantity demanded

= change in the quantity consumers are able to buy when price changes —> movement along the demand curve

Market Demand

= Sum of the demands of all consumers

Market Demand Curve

= showing the relationship between price and quantity demanded by all consumers

= “how much of your product are you willing to produce an sell?”

Example Pizza Market

• Price of the product (price per pizza)

• Wage paid to workers

• Price of materials (dough, cheese,…)

• Cost of capital (pizza oven,…)

• State of production technology (knowledge used in making pizza)

• Producer’s expectations about future prices

• Taxes paid to the government or subsidies

Individual Supply Curve

= showing the relationship between price and quantity supplied by a single firm

Law of Supply

= positive relationship between price and quantity supplied

—> positively sloped: considering firms to increase in price —> individual firms increase output by pruchasing more materials and hiring more workers; new firms can enter the market

Change in Quantity Supplied

= change in quantity firms are able to sell when price changes

—> movement along the supply curve

Minimum Supply Price

= lowest price at which a product will be supplied

Market Supply

= Sum of the supplies of all firms

Market Supply Curve

= Sum of the individual supply curves horizontally

= bringing Supply and Demand together

—> quantity demanded = quantity supplied (for prevailing market price)

• Excess Demand —> increasing price

• Excess Supply —> decreasing price

Change in Quantity Demanded

—> lower price —> increasing quantity demanded

—> movement along the demand curve

Change in Demand

—> higher demand —> shifts demand curve to the right

Increase in Demand —> shift to the right

• at each price, quantity demanded increases

• New equlibrium price and quantity will be higher

Decrease in Demand —> shift to the left

• at each price, quantity demanded decreases

• New equalibrium price and quantity decreases

Change in Quantity Supplied

—> changing price

—> movement along a single supply curve

Change in Supply

—> change in something other than the price of the product

—> curve shifted

Increase of Supply —> shift to the right

• at each price, quantity supplied increases

• decreases equilibrium price, increasing equilibrium quantity

Decreases in Supply —> shift to the left

• at each price, quantity supplied decreases

• increases equilibrim price, decreasing equilibrium quantity

Larger Increase in Demand

• increase (demand) > increase (supply)

• shift demand curve > shift supply curve

• equlibrium price and quantity will increase

Larger Increase in Supply

• increase (supply) > increase (demand)

• shift supply curve > shift demand curve

• equlibrium price decreases, quantity increases

• If more RES capacity, curve will shift to the right —> less gas power plants are used

• Lower/higher prices because of different efficiencies which depends on variable costs

• Higher carbon prices, the curve will raise, but not RES and nuclear —> higher electricity prices