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| Look again at textbook Figure 2.2. Trace it onto a piece of scrap paper. Now draw two demand curves on your figure. Draw one that is horizontal at P = $32/MWH and one that is vertical at quantity = 15,000 MWH. (a) What happens to the equilibrium price when the supply curve shifts from S0 to S1 in each case? (b) A horizontal demand curve means that consumers will buy any amount produced at a price of $32/MWH or less, but they will buy none if the price goes higher. A vertical demand curve means that consumers do not respond at all to price-they will buy the same quantity regardless of how much it costs. Which do you think is closer to how consumers buy electricity? That is, do consumers pay a lot of attention to price (the horizontal curve), or do they ignore price (the vertical curve)? (c) Compare your answer in (b) to the true demand curve in Figure 2.3. When the price shifted, did the quantity demanded change a lot or a little? |
