Economics Principles: Market forces and solar panel analysis

This economics assignment examines the market forces impacting the solar panel and electricity markets. The analysis begins by illustrating the effect of a price increase on solar panels, demonstrating how excess supply leads to a return to equilibrium. It then explores the relationship between electricity and solar panels as substitute goods, showing how a decrease in electricity prices can reduce the demand for solar panels. Finally, the assignment considers the effect of an increase in the number of solar panels available in the market, which increases supply, decreases the price, and subsequently reduces the demand for solar panels. The assignment utilizes diagrams to illustrate these concepts and references key economics texts to support the analysis.

Running head: ECONOMICS PRINCIPLE
Economics principle
Name of the Student
Name of the University
Author note

Price of solar panel
Quantity demanded for solar panel
P1
p
Q Q1
S
D
b
e
a
1
ECONOMICS PRINCIPLE
Answer 1
The market forces of demand and supply is affected by various forces and two of the most
important forces is the price of the good and the price of the substitute.
Figure: effect of price of solar panel being more than equilibrium price
Source: author creation
From the above diagram it can be seen that as the price of solar panel increases above the
equilibrium price (ceteris Paribus) that is if it increases from “p” to “p1” then there is excess
supply in the market which can be seen from the difference between “a” and “b”. this is
because at that price supplier will supply more and buyers will demand less. Due to excess
supply the price will slowly start to fall back again to the equilibrium price “p” that is
denoted by the movement of the arrow back to the equilibrium point “e” 1.
1 Mankiw N. G. Essentials Of Economics. Cengage Learning, (Cengage learning, 7th ed, 2014)

2
Q1
PRICE OF SOLAR PANEL
QUANTITY DEMANDED OF SOLAR PANEL
D
S
P1
P
D1
ECONOMICS PRINCIPLE
Figure: effect of decrease in price of electricity
Source: author creation
From the above diagram, it can be seen that as the price of electricity decreases the demand
for electricity will increase. On the other hand, electricity being a substitute good for solar
panel, thus the demand for solar panel will decrease, as people will start consuming more
electricity compared to solar panel. Price of solar panel becomes more compared to
electricity.
Q

3
Price of solar panel
Quantity demanded for solar panel
P1
P
Q
S
D
e
a
Q1
S
ECONOMICS PRINCIPLE
Figure: effect of increase in the number of solar panel
Source: author creation
From the above diagram, it can be seen that as the number of solar panel will increase in the
market the supply of solar panel will increase. This in turn will increase the price and
decrease the demand for solar panel from Q to Q1. Thus, an increase in supply of solar panel
causes a inverse effect on the demand for solar panel 2.
2 Baumol W. J. Microeconomics: Principles And Policy. (Cengage Learning, 13th ed, 2015)

4
ECONOMICS PRINCIPLE
References
Mankiw N. G. Essentials Of Economics. Cengage Learning, (Cengage learning, 7th ed, 2014)
Baumol W. J. Microeconomics: Principles And Policy. (Cengage Learning, 13th ed, 2015)