Got an assinment that needs to be done. Answer the 3 questions on the last page. 1000 words. the...

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Got an assinment that needs to be done. Answer the 3 questions on the last page. 1000 words. the instructions aare all there.

David · Accepted Answer

Answer 1.  
It has been evident that the gas price increases by the various retailers in South Australia 
range from 10.2% to 13.5% (http://www.energywatch.com.au /news/article /South_Australians _ 
Prepare_For_Gas_Price_Hike, 2013). This conveys that more or less all the retailers are raising 
the prices by a considerable amount. It could be possible that the price increases accrue to the 
distribution costs and direct cost of gas that the distribution companies have to pay. The 
increased cost of gas for distribution companies should be reflected in their higher marginal 
costs. Since the supply curve is the upward sloping portion of the marginal cost curve, it will 
shift upwards and lead to a price increase. 
Another reason for gas price hike could be the increased markup by either the distribution 
companies or the retailers to raise their profits. For this the suppliers will supply the same 
quantity for a higher price, so the supply curve would shift upwards causing the gas price to 
increase. (Hunter, 2009)
Assuming that the incomes of the consumers remain the same and also assuming that the 
tastes and preferences of the consumers do not change, the demand curve for gas/electricity 
utility sector will show the relationship between price of gas and the quantity demanded. Since 
the good in discussion is the gas/electricity utility sector and not gas or electricity, the effects of 
existence of substitutes will not be there. The upward shift of the supply curve from SS to S’S’ 
causes excess demand at the old price p. This excess demand puts an upward pressure on the 
price which would lead to increase in the expenditures of the consumers. Since the incomes of 
the consumers are assumed to remain same, the consumers will reduce the quantity demanded of 
gas/electricity to prevent increase in expenditure. This is depicted in the movement along the 
demand curve from point E to E’. So, ultimately the price hike leads to the consumers spending 
the same amount of money but consuming much less amount of gas/electricity.
Answer 2.

Got an assinment that needs to be done. Answer the 3 questions on the last page. 1000 words. the instructions aare all there.

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