Price Elasticity of Renewable energy - Assignment Example

Price Elasticity of Renewable energy Price and good demand relates in a particular manner. In that a change of price will affect the quantity of good demand from a particular market. The effect could vary depending on the types of good being supplied in the market. The percentage of goods demand will depend on the price issued by the manufactures and other suppliers of the good. Price elasticity of demand indicates the percentage change of goods demanded based on price issued by the producers. In most cases a change of price will have no effect on the short run but as time progresses the demand curve becomes elastic and shift depending on the price. Price in most cases is affected by income and personal perception of affordability. The market creates a buffer n that beyond it people may determine whether the good is affordable or expensive. The quantity supplied will depend on the income and other determinants of price. The essay will focus on price elasticity of demand in the oil industry The price of a good will determine the amount demanded in the market. In this case the price of renewable energy will determine the amount being demanded. The market creates its demand and supply factors in this an increase in price will imply that consumer will shift their demand from renewable energy to fossil fuel. High fuel cost will imply that customers seek alternatives and in this case fossil fuels will be the alternative to green energy. The energy supplied to the market will depend on the personal valuation of the market. In a household perceptive, people will demand based on the level of income. Income plays a vital role in determining the quantity demanded. High prices will minimize the quantity demanded in the market (Lonergan 88) The price of crude oil will determine the amount of demand for renewable energy. The market has fossil fuels as the substitute to renewable energy. As much as the market determines its own demand and supply, price elasticity of demand will be determine with various components. The households will prefer goods that are affordable. The overstrained budget will mean that individuals will tend to minimize their expenditures. In this case, people owning cars will tend to focus on fuels that are affordable. The concepts imply that people will use fuels based on their prices. When the prices of renewable energy rise, the market consumes less. This means that people will minimize the use of personal cars and prefer public transport. This means the consumption of renewable will depend upon its prices. The slightest change of prices will affect the demand of the good to the market. The energy sector is complex and people will tend to chose alternatives as a means of minimizing costs (Kumar & Sharma 98). The price of any product depends on various factors and in this case the price will determine the level of the market. In an event the prices are lowered, the demand of the good will increase. This means that if the cost of demand reduces by a certain percentage, the same will be reflected on the price demanded. In this case people will tend to utilize more of the product given the impact of the price to their overall budget. Households will prefer commodities that will have a minimal impact on their overall budget. In this case the individuals will prefer personal vehicles over public transports. This implies that the demand for the renewable income will increase to lower prices. This fact is determined by the fact that people will perceive a certain good to be expensive based on their income (Jain & Sandhu, 188). This means that the prices have a negative correlation with the goods demanded. The higher prices the lower the quantity demanded in the market. The price of substitute determines the quantity demanded in the market. In this case if the price of a substitute is lower compared to the given good, the market will shift and demand more of the substitute good. In this scenario, the substitute fro renewable fuels are the fossil fuels. This means the price of crude oil will be determine how renewable goods are demanded on the market. Higher prices of substitute goods will imply that the customers will shift from fossil fuels and embrace renewable energy. The current price of renewable energy means that people are demanding more of fossil fuels due to its cost. High cost of fuels will mean that people will find alternatives that are cheaper than their preferred commodity. The demand for a substitute good depends on the value market of the other good (Jain & Sandhu, 187). High substitute prices will mean high demand of renewable energy as people will shift demand based on prices. In this case high prices of crude oil will mean that people will demand more of the fossil fuels. Income also plays an impact in determining the amount supplied in the market. When overall income of the market increase, the demand of goods increase. In this case, if the overall income of a given population increases, the demand of fossil fuels will increase. The main factor in determining the goods demanded is the overall income. The market will have more to spend on the good compared to other commodities. Higher income will mean more expenditure on luxury goods. In this case cars are considered luxury (Jain & Sandhu, 187). The higher number of cars will mean that the market demands more of the renewable energy. However if the income decreases the market will tend to ignore enable energy and channel their income to basic commodities. The basic commodities will be priorities and hence prices will impact on the amount demanded by the market. The government plays a vital component in ensuring a certain good is demanded more. In this case the government has the ability to impact on the demand of a certain good. Government may control the market to ensure more competitors entering the market. In this case alternative energy will be avoided. This will reduce the market dominance and hence decrease the price of commodities. If the prices of given commodities decreases, the demand of it increases. This would be different if a certain market is dominated by a single player. The supplier hence determines the prices. This would affect the demand of a certain good in situations where the goods being supplied are not a necessity. The high price of the good will determine the level of demand from the market (Kumar & Sharma, 1989). The flexibility of the oil market is effective as they impact on the amount being supplied to the market. The market also may have an impact on the prices as well as the demand. The amount of goods being demanded will determine whether the supplier will adjust the price. Lower demand means good will be of higher prices. The suppliers may site production cost as the main reason of price adjustments. This means low production cost will mean the end products are of a lower cost. The market then aims on utilizing this concept by demanding more of the good. In some cases the costs of production are high thus; individuals will tend to demand less of the product. This concept has an impact of the demand of renewable energy to the commercial market (Lonergan 90) This means that industry will seek alternatives to ensure the production cost is as low as possible thus if renewable energy is high in cost, fossil fuels will be preferred. This will reduce the cost of production. In conclusion, prices have an effect on the amount of goods being demanded in the market, higher prices will means that the amount of goods being demanded will decrease. The situation is worse when the product being supplied in the market have close substitutes. The lower prices will increase the quantity demanded. However the situation is different in Luxury commodities and in a monopoly market. The two areas are crucial as they react differently on prices. Works Cited Kumar, Arun & Sharma Rachana. Managerial Economics. New Delhi: Atlantic Publishers, 1989. Print. McEachern, Thomas. Environmental Change, Adaptation, and Security: Budapest: Springer Science, 2000. Print. Sandhu, Sing & Jain, T. Microeconomics. New Dehli: FK Publications, 2012.print. Read More