The Supply and Demand Models Based on Electricity Consumption
Analyzing how the supply and demand of a commodity changes as a function of its price is one of the many purposes of the field of economics. The supply and demand model of a commodity is also the most efficient analysis tool in the field of economics. As
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The Supply and Demand Models Based on Electricity Consumption
Analyzing how the supply and demand of a commodity changes as a function of its price is one of the many purposes of the field of economics. The supply and demand model of a commodity is also the most efficient analysis tool in the field of economics. As we discussed in Chap. 2, total product quantity is correlated with electricity consumption by e-q function. In addition to introducing the supply and demand model of a commodity, this chapter also discusses commodity prices, the supply and demand model of a commodity as a function of its electricity consumption. It is p-e model. Based on the p-e model, it has also studied demand elasticity and supply elasticity, as well as the P-E model which is the relationship between commodity price change and electricity consumption change. Some case studies for China’s economy in 2010–2012 have been analyzed in this chapter.
4.1 The Supply and Demand Model of a Commodity Markets organize the supplier S and the demander D of goods and services and facilitate the exchange of information and commodity transaction. Shopping malls, vegetable markets, and stock markets are all trading places for the exchange of commodities and information; however, online shopping, booking tickets, and so on are all commodity and information trading platforms; in a word, they are markets. At the end of the eighteenth century, British economist Adam Smith believed that there is an “invisible hand” that commands the economic operations in the market. Consumers and producers are the two main players of a game in the market. For any commodity, consumers would like the commodity with lower prices; on the other hand, manufacturers would benefit from selling commodities at higher prices. It follows thus that the game generated between the supply and the demand is also a tussle for the power between the supply and the demand. As shown in Fig. 4.1, when the force of the demand side is greater than the supply side, the price of the commodity will be moved to the left (lower price). When the force of the demand side is less than the supply side, the price of the commodity will be moved Z. Hu and Z. Hu, Electricity Economics: Production Functions with Electricity, DOI 10.1007/978-3-642-40757-4__4, © Springer-Verlag Berlin Heidelberg 2013
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4 The Supply and Demand Models Based on Electricity Consumption
D
S price p
Fig. 4.1 Game of supply and demand
to the right (rise in price). When the forces are equal for both sides, the price will be unchanged with a temporary equilibrium. If some external factors change (such as natural disasters and man-made disasters), this balance will be broken; consequently, a new game will start. Commodity prices play a critical role in the market because they affect consumer’s demand as well as producers’ supply for commodities. What is the relationship between supply and demand and the commodity price? In economics, the supply and demand model can explain the relationship between the commodity price and the
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