Answer to Question #183790 in Microeconomics for Pravika Maharaj

Question

Explain whether there is a shift in the demand curve, the supply curve, or neither, if there is an unexpected shortage of electricity due to low coal supply and or any other source. Use a supply and demand diagram, to illustrate the effect. [15 marks].

Answer 1

Coal is considered as one of the raw material in the production of electricity. 

Fall in the supply of coal will lead to shift in the supply curve in the leftward direction. This can be illustrated as follows with the help of following graph. Due to low coal supply reduces the supply of electricity and hence supply curve shift from S to S1 in the leftward direction.