Hi, I need help urgently on this economics question:
Examine the likely economic effects of an increase in Australian coal prices on Uk electricity prices.
other information given is that the uk enervates about one quarter of its electricity by burning coal, much of which is imported from Australia. It's a 10 mark question.
Micro Economics A Level Question Watch
- Thread Starter
- 12-05-2013 18:13
- 12-05-2013 18:25
as mentioned the UK imports most of its coal. So an increase in the price of coal in australia will cause an increase in production costs of electricity in the UK,. therefore reducing supply and Shifting the supply curve to the left. As a result demand will fall. It's mentioned only 25% comes from coal, so there should be substitutes such as gas etc. Therefore it can be assumed price elasticity of demand will be elastic, so demand will shift also to the left. Both output and demand will fall, so a new equilibrium will form.
I'm assuming suppliers won't be able to pass costs onto consumers due to the elasticity of demand being elastic.Last edited by help-me333; 12-05-2013 at 18:26.