Reference no: EM131580528

Question: Continuing on from the previous problem, suppose that new innovations in energy efficiency reduce people's need for electricity.

The supply side of the market does not change, but at each price buyers now demand 3 million kilowatt hours fewer than before. For example, at a price of 11 cents per kWh, buyers now demand only 6 kWh instead of 9 kWh.

a. On a new graph, draw supply and demand curves corresponding to prices of 16 cents per kWh or less, after the innovations in efficiency. Also, for reference, mark the old equilibrium point from the previous exercise, labeling it E1.

b. If the price were to remain at the old equilibrium level (determined in part (c) above), what sort of situation would result?

c. What is the new equilibrium price? The new equilibrium quantity? Give this point on your graph the label E2.

d. Has there been a change in demand? Has a change in the price (relative to the original situation) led to a change in the quantity demanded?

e. Has there been a change in supply? Has a change in the price (relative to the original situation) led to a change in the quantity supplied?