Answer to Question #313091 in Microeconomics for Nasima

Question

According to economists, If the price of energy (oll and gas, increases, then the price or certain goods anc

services can also increase. Use the Model of Demand and Supply (diagram) to explain why this might be

the case. You can discuss using the example or any product

Answer 1

Energy is used in the production of almost all products and services. These energies are derived from oil, gas, and nuclear among other sources. Firms use the energy in processing, manufacturing, or production of goods and services. Rise in the cost of energy will lead to an overall rise in cost of production. In order to cushion the firm against the extra cost of energy, the cost is transferred to the buyers by offering them goods and services at a higher price. This explains the rise in price of goods.