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Heating Commodities - College Essay

Heating Commodities

Back in the middle of October, the price of natural-gas had risen
because a gas company was forced to shut down a pipeline due to the need for
repairs. This impending shortage led to the decrease in prices for other
heating commodities, as well as larger profits. The demand for energy was
becoming greater and greater because it was that time of year when consumers
began storing energy in their homes to prepare for the cold winter months ahead.
The four commodities mentioned in this article, crude oil, heating oil,
gasoline and natural gas are all substitutes for one another. This is true
because the cross elasticity of demand states that as the percentage change in
the quantity ...

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buy by the price of their desired good. Naturally,
consumers will choose the lower price of a commodity they wish to purchase.
This is why consumers, wanting to heat their homes, chose to heat them with
natural-gas's substitutes (crude oil, heating oil, or gasoline) rather than the
natural-gas, the higher priced commodity. The commodity, energy, is something
that people can not go without during the winter months. If their is a shortage,
which means that consumers demand more than the available supply, it leads to an
increase in price.
As shown in the graph below, as the supply decreases, the price
increases. This means that the price is inelastic. This is true because as the
price of the commodity is increased, the total amount spent on the commodity
will increase also.
The price mechanism reflects scarcity, which is stated as the greater
demand for a good, energy, (because of the desire to store it for the colder
months ahead) with the same supply of that good becoming ...

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Heating Commodities. (2005, January 3). Retrieved January 23, 2025, from http://www.essayworld.com/essays/Heating-Commodities/20013

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PAPER DETAILS

Added: 1/3/2005 06:47:23 PM
Category: Economics
Type: Free Paper
Words: 543
Pages: 2

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