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April 30th, 2008 — energy
I cam across a new concept in economics today. The idea of fuel poverty. This is defined as needing to spend 10% or more of income on energy. Using this definition there are 5.5 million people in the UK classified as being ‘poor’.
However, this figure may be set to rise as electricity and gas bills are set to rise. Oil prices are also continuing an unrelenting climb with some in OPEC warning of a $200 a barrel.
See: post on fuel prices and oil company profits
March 31st, 2008 — energy
Readers Question Am I correct in assuming that electricity is an inelastic supply? Oil is in short demand, there are not many green/low emission replenishable supplies and in the short run this would explain the continued increase in prices for the consumer.
I think that in the short term electricity supply is quite inelastic. When the price rises it is not easy for electricity generators to immediately increase the supply. They may have some spare capacity, but, mostly supply is fixed by the number and size of electricity power stations.
In the long term, the government and power companies could invest in new sources of electricity generation, but, this could take a long time to occur. Therefore, over time supply will be more elastic. But, are the price increases temporary or permanent?
Because supply is inelastic, when there is an increase in demand we tend to get a significant increase in price. In recent years global demand for energy has risen because of economic growth in countries such as China and India. There large economies are growing at a fast rate and this is a major factor in causing rising demand and therefore rising prices. Continue reading →
