Economic Analysis of Energy Market

Running head: ECONOMICS 1
Economic Analysis of Energy market
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1ECONOMICS
Economic Analysis of Energy market
The law of demand and supply
The law of demand states that "Ceteris Paribus, the demand of commodity increases
with the decrease in price and is lower with the increase in prices of the
commodities"(Chendroyaperumal, 2010). The law of supply states that "The quantity
supplied of the given commodity increases with the increase in price and decreases with the
decrease in price of the commodity causes the quantity supplied to reduce”. These law were
applied to the product purchase.
The demand curve showing the demand of the commodity
Demand of energy commodities before taxation and regulations
Price elastic demand of commodity
Since there are no regulations within the market, even though when the demand of the
commodity is elastic, the quantity of energy commodities that are available in the market
(supply) is high before taxation, this is because there is an increasing number of people who

2ECONOMICS
are willing and able to purchase these commodities (demand). The availability of the willing
population is caused by the low prices and these prices are set because of the existing
government policy of taxation on energy products (Reed, 2016).
The increase in the demand of the product because of the lower prices will cause a
shift in supply so as to cause equilibrium. Therefore, before taxation both demand and supply
of the energy product were high and the prices where low.
Price inelastic demand of commodity
Price elasticity of demand is referred to as the ratio of percentage change in the
quantity demanded of a given commodity to the percentage change in the price of a given
commodity. The formula for evaluating the price elasticity coefficient for demand of a given
commodity is given by;
where Q is the quantity demanded of the commodity and P is the
price of the commodity.The formulae of elasticity of demand always give a negative yield
because of the inverse proportionality of relationship between quantity demanded and price
of the commodity (Sabatelli, 2016).
Price inelasticity of demand refers to a condition where a change in price of the
commodity doesnot greately affect the quantity demanded of the same commodity.
Given the fact that the demand of energy products is inelastic, the quantity demanded
will not reduce given the fact that there is a price increase. This is because of their purpose in
daily life where different individuals cannot do without them.
The graph showing price inelasticity of the commodity