California Power Exchange By Nate Sukonik, Michelle Lee, Cathy Aronin, and Zack Honig Question #1

:

June 30, 2000
3000 2500 2000 Price 1500 1000 500 0 0 10000 20000 30000 Quantity 40000 50000 Demand Supply

June 30, 1999
3000 2500 2000 Price 1500 1000 500 0 0 10000 20000 Quantity 30000 40000 Demand Supply

144. 2000 3000 2500 2000 Price 1500 1000 500 0 0 10000 20000 30000 Quantity 40000 50000 Demand Supply June 30.72 Price: 749.09 Price: 109.Question #2: Equilibrium Data June 30.99 .99 June 30.1999 Equilibrium Quantity: 31.376. 1999 3000 2500 2000 Price 1500 1000 500 0 0 10000 20000 Quantity 30000 40000 Demand Supply June 30. 2000 Equilibrium Quantity: 32.

99) ) = ( (-119.9) / (32.72 – 32.85 Quantity Demanded = 31.144.09 Delta Price Demanded = 109.99 – 106) / (109.99 – 749.09) ) / ( (3.72 – 32.376.99 Price Elasticity Demanded = ( (31.62) / (32.99) ) = – 0.49) / (749.0429 .376.62 Quantity Demanded = 32.99) ) = ( (-0.144.72) ) / ( (0.5 Price demanded = 749.144.09 – 31.76) / (31.495.99 – 106 Price demanded = 109. 2000: Delta Quantity Demanded = 32.145.144.99 – 749.85) / (31.376.09) ) / ( (109.376.99) / (109.1052 June 30.09 – 31.Question #3: June 30.495. 1999: Delta Quantity Demanded = 31.99) ) = – 0.72) ) / ( (749.99 Price Elasticity Demanded = ( (32.144.376.72 Delta Price Demanded = 749.5) / (749.145.

Question 3 Part II: Had the supply conditions not changed from the 30th of June 1999 to the 30th of June 2000. a $290. June 2000 Demand vs. what would have been the increase in the price of a megawatt/hour caused by the shift in demand? If the supply conditions had not changed from the 30th of June 1999 (price cap of $250 megawatt/hour) to the 30th of June 2000.01 increase in price from June 1999. June 1999 Supply 3000 2500 2000 1500 Demand 1000 500 0 0 -500 5000 10000 15000 20000 25000 30000 35000 40000 45000 Supply Price Quantity . the price of a megawatt/hour would have been $400.

000.Question #4: Actual June 2000 Supply Curve 3000 2500 2000 Price 1500 1000 500 0 0 5000 10000 15000 20000 Quantity 25000 30000 35000 Predicited June 2000 Supply Curve With Natural Gas Price Increase 3000 2500 2000 Price 1500 1000 500 0 0.00 30.00 Quantity 25.000.000.00 5.000.00 20.00 15.00 10.000.000.000.00 35.00 .

The quantity supplied increases insignificantly in comparison to the original supply curve. if the price of inputs increases the supply curve will shift in as seller are less willing or able to sell goods at existing prices. You can see that in the graph with the natural gas price increase. According to the law of supply. . the quantity increases while the price does not severely change.Question 4 Continued: It is evident from that graphs that the price of input accounts for the shift in supply.

1052 and in June of 2000 the price elasticity of demand was –0.Question 5: The electric utilities have claimed that the rising prices for electric power were caused by the actions of the sellers in the market who conspired to withhold electric power (decrease the supply) with the intent of pushing prices up. which are both inelastic. Therefore. We also know that an increase in prices will increase revenue if the price elasticity of demand is inelastic. the sellers would have benefitted from collusion to raise prices. From question 3. which it is as this point. .0429. we must know the price elasticity of demand at the prior equilibrium point. as their revenues would have increased. we know that in June of 1999 the price elasticity of demand was –0. How could you establish whether or not the sellers may have benefited from such actions? Would their revenues increase as a result of the higher market prices? Why? In order to determine whether or not the sellers could have benefited from the price increase.

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