Answer to Question #244966 in Microeconomics for RAHUL

Question

The freezing cold spell at the beginning of 2010 not only increased demand for road salt, (see the additional case study for chapter 6) but it increased demand for gas in the UK. Usage reached 454 cubic metres; the previous record was 449m set in January 2003. The National Grid which is responsible for energy in the UK issued several warnings in a matter of days that demand could outstrip supply and asked supplier so increase the supply. The National Grid also told major gas users, such as power plants, to reduce demand. Big generators, such as E.On, have both gas-fired and coal-fired power stations and are able to choose between the two. In total, 27 large gas users were asked to switch - 12 in the East Midlands and 15 in the North West. 

Questions

1. Illustrate the effect of the cold spell on the demand for gas using a demand curve diagram.

Answer 1

The below curve shows the effects of cold spell on the demand of gas.

An increase in the demand for a gas due to freezing cold spell results in a shift of the demand curve for gas from D to D' due to which the price of the gas increases from P to P' and the quantity of gas increases from Q to Q' as shown below.