Answer to Question #116973 in Macroeconomics for Muhammad

Question

A market for electricity is in equilibrium in bangladesh at a point where both supply and demand curves intersect each other. If the following events ( price factors or non price factor of demand or supply) take place into the market of electricity then how it will effect equilibrium point, equilibrium price and equilibrium quantity of electricity in bangaldesh. Use graphical representation for each case seperately to answer your question. Label and interpret each daigram

1.Govt. of bangladesh opens up doors for research and development for all the firms to produce cheap electricity in bangladesh

Answer 1

Increasing access to the R&D for all companies leads to the rise in the supply of cheap electricity in the country. The supply curve moves to the right from S₀ to S₁, while demand stays on the previous level. The new market equilibrium establishes in the point E₁. Consequently, the equilibrium quantity on the electricity market grows (shift from Q₀ to Q₁). In a result of the increase in supply without changes in demand, equilibrium price decreases from P₀ to P₁. The amount of electricity grows and the price declines.