Energy Management Economics
What are the factors that determine the price of electricity for the consumer? How do different sources of electricity, including coal, natural gas, renew
ables, and nuclear energy interrelate in determining this price? This section is intended to provide you with a basic understanding of how various factors might interact to affect the supply, demand, and price of electricity. These factors might include natural and man-made disasters, government intervention, public perception, or other market determinants.
Discussion Questions 1
What factors affect how quickly the other energy sources—natural gas, nuclear, and renewable—will be able to meet the increase in demand that results from a reduction in the production of coal? Which of these other energy sources do you think will be able to meet the increase in demand? Explain why.
How do you believe the increase in the price of electricity will affect consumer behavior? How is your answer affected by the price elasticity of demand for electricity? Should the price elasticity of demand affect the decisions made by regulators related to prices and encourage the development of renewable energy sources? Explain your answers.
Who are the stakeholders affected by this scenario? What are the potential positive and negative implications for these stakeholders? How might the short-term implications differ from the long-term implications?
Discussion Questions 2
What factors affect how quickly U.S. businesses will actually increase their consumption of renewable fuels versus other energy sources?
What role do existing technologies, production processes, and the prices of factors of production play in this process of shifting to the use of renewable fuels?
When the quantity of energy demanded by consumers decreases, energy suppliers might have a hard time covering their costs for producing energy. Because utilities must cover their costs and produce a return on investment to their shareholders, they may increase the price to the consumer. How would this price increase potentially affect the overall energy market in both the short and long term?
Discussion Questions 3
What factors affect how quickly the other energy sources—natural gas, coal, and renewable—will be able to meet the increase in demand that results from a reduction in the production of nuclear energy? Which of these other energy sources do you think will be able to meet the increase in demand? Explain why.
How do you believe the increase in the price of electricity will affect consumer behavior? How is your answer affected by the price elasticity of demand for electricity? Should this affect the decisions made by regulators related to prices and encourage the development of renewable energy sources? Explain your answers.
What happened to the development and production of nuclear energy in the U.S following the Three Mile Island incident? What were the implications for the construction of new nuclear power plants? What new regulations governing the production of nuclear power were implemented? Were the regulations effective or ineffective? Explain why or why not.
Discussion Questions 4
During an economic slowdown, the price of energy should decrease due to the decrease in demand leading to lower equilibrium price. Why or how might the price of energy not decline?
What happened to oil and gas prices during the recession of 2007–2011? What were the factors that led to these results? What do you expect the effect of this change in oil and gas prices to have been on the production and consumption of renewable energy sources?
Discussion Questions 5
What factors do you believe are important determinants of the demand for solar panels? Of these, which is most important to you?
Identify an example of a technological improvement that lead to increasing supply of a critical product, for example, a personal computer. What was the effect on the market price of this product? Over time, what happened to the demand for this product? How has its increasing use affected households and businesses?
