Analyze the issue:Draw a graph illustrating California’s electricity crisis. Put the label “Price of electricity (cents per kilowatt-hour)” on the vertical axis and “Quantity of electricity (megawatts per hour)” on the horizontal axis. As explained in Chapter 4, draw the changes in demand and supply for electricity in California described above.

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Asked Dec 14, 2019
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Analyze the issue:

Draw a graph illustrating California’s electricity crisis. Put the label “Price of electricity (cents per kilowatt-hour)” on the vertical axis and “Quantity of electricity (megawatts per hour)” on the horizontal axis. As explained in Chapter 4, draw the changes in demand and supply for electricity in California described above.

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The equilibrium in the market is obtained at the intersection of the market demand curve and the market supply curve. It means that when the demand and supply intersects, then there will be no excess of shortage in the economy which is known as the equilibrium. In the case of electricity in the given economy, the demand is increasing whereas the supply is decreasing. When the demand increases and supply decreases in the economy, the intersection between the two will take place at a higher left point of the existing equilibrium. This means that the prices will increase and the equilibrium quantity would decline in the economy. But in this case, there is government price ceiling which prevents the prices to increase as the market economy is meant to be. The price ceiling prevents the price for electricity from rising to the new equilibrium level. Thus, the demand keeps higher than the supply which results in the electricity shortage in the economy. This results in the higher demand and lower supply and preventing the prices from adjusting. As a result, there will be shortage in the economy. It can be illustrated as follows:

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Supply and Demand

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