HI5003 - Economics For Business - Demand Supply - Essay Writing Assessment Answer

Economics For Business Assignment

Assignment Task

Introduction

In this paper, the discussion is about the demand and supply of solar power products to the people of Australia, a country which has abundant sunlight in almost all parts of the year. The Demand for solar panels and the creation of one’s own electricity has been two of the reasons why it has increased over the past decade. However, whether the demand for solar products has been stagnant over the past few years had been a worrying part for the suppliers of these solar panels installers in Australia(Mercer, 2014). This paper would discuss about the factors affecting the demand and supply of solar panel products in Australia.

Demand for solar products in Australia:

The demand for any product is affected by the price of the products, price of other related products, tastes and preferences and income of the consumer(Boumal & Blinder, 2012). This is true for the product under consideration – solar panel products. The demand for solar products in residential houses in Australia has increased not only due to falling prices (due to lowering costs), but also due to the increasing environmental awareness, increasing energy bills, and also for the money that can be earned by the excess of electricity that can be pumped into the grid.

The movement along the demand curve of the product, increase or decrease in the quantity demanded of a commodity is caused by falling prices. As we know from theory that the quantity demanded of a commodity is inversely related to the changes in its price as shown in the diagram below.

When the price of solar panel decreases from P1 to P2, the quantity demanded has increased from Q1 to Q2; however this increase is due to the change in price, as it is a movement along the demand curve. Demand also increased due to other factors like the changes in the prices of related products(Miller, 2012). Since the prices of other forms of electricity have increased, the Australian people are shifting their consumption to the solar panel products due to substitution effect. This is shown by the rightward shift of the demand curve below. This rightward shift can also happen due to increased environmental awareness as it is a renewable form of energy.

Supply of solar panel products:

There are more than 4500 suppliers or producers of solar panel products all over Australia. They tend to convince the residential owners into installing solar panels on their roof tops such that more and more houses would become self-reliant on their own production of electricity.(McTaggart, Findlay, & Parkin, 2012)This has led more and more residential owners to install solar panels in their rooftops. The supply of solar panels is shown in the following figure.

In the above figure, we can see the positive relationship between the price of solar panels and the quantity supplied of solar panels. The increase in the supply of solar panel is caused by several factors. The factors affecting the supply of solar panels are the costs of production, which is becoming lower as the imported panels from China are becoming lower in costs. This is shown using the rightward shift of the supply curve in the figure below.

Australia is heading towards converting itself to renewable sources of energy half of which is through solar energy resources PV (rooftop) and PV(utility). However, it is essential that government takes the right steps in achieving the required installed capacity of solar panel capacity in the country. For example, the million solar roofs policy taken up by the government in Canberra is targeted towards installing a million more homes with solar panels in their rooftops and this would increase the solar power generation in the country and people would be generating and using their own electricity. For this purpose, the government is giving a rebate or subsidy of 500 dollars which would increase the supply of solar power panels as shown in the following figure.

Equilibrium output and price:

When the increasing demand for solar panel products and the increased supply due to falling costs and government subsidy intersect each other we have more quantity demanded and supplied of the product, at a much lower price(Boumal & Blinder, 2012). And the government realises its targets aimed at 2050.

In the above figure the demand has increased from DD to DD1 due to increased environmental awareness and also due to increased energy prices (of other forms of energy). Similarly supply has increased from SS to SS1 due to fall in the costs of production. This results in the increase in the equilibrium output from Q1 to Q2, though the price remains the same at P (as both the demand and supply has increased simultaneously). The policy of the government to provide rebate for the lower income groups and provided them with the subsidy of 500 dollars has increased the supply from SS1 to SS1 + subsidy curve. This initiative of the government has lowered the price for the lower income groups and the equilibrium output has increased further to Q3.

Subsidies are incentives given to increase the production and consumption of merit goods like solar panel products in a country.(McTaggart, Findlay, & Parkin, 2012)It is offered by the government on the price of the product which lowers the price by a certain amount. This is done to increase the welfare of the country in the production and consumption of more solar panel rooftops. This would serve as a purpose of attaining the target of million solar roofs policy in Canberra.

Conclusion:

The demand and supply of a product in the market is affected by a number of factors. The main factor affecting the demand and supply of the product is its price. However the increasing environmental awareness is one of the main factors affecting the demand for solar panel products in Australia. The second most important factor is the increased energy prices which have led to the shift towards solar energy. Similarly the supply of the solar panels products is affected by the number of factors. The important factor affecting the supply is the falling costs of the solar panels which has increased the supply and the efficient technology. The subsidy provided by the government also affects the equilibrium output of the product.