1. Suppose we are examining the market for 240-foot industrial wind turbines. Consumers (buyers) of these wind turbines use them to generate electricity. For this analysis, we are interested in the demand for wind turbines and the supply of wind turbines – the supply and demand together create the wind turbine market.
Please use the model of supply and demand to analyze various market scenarios. Make the normal assumptions about the Laws of Supply and Demand, and also about the “determinants of demand” and the “determinants of supply.” Treat each scenario as a separate event.
Interpret basic scenarios: Within the wind turbine market, correctly identify the correct function (either the supply of, or the demand for, wind turbines) and the appropriate direction of change (increase or decrease), for each situation below. Illustrate each answer with a simple graph. Then, in a short paragraph, explain why it is a supply-side or demand-side change, and why the predicted change is an increase or a decrease. Treat each scenario as a separate event.
a. A technological advance reduces the cost of production for industrial wind turbines.
b. The number of users [consumers] of industrial wind turbines increases, because more firms in private industry are buying wind turbines to generate power for themselves; in addition, a larger number of public utility companies are buying wind turbines as a “greener” source of electrical power.
c. Suppose natural gas is a form of energy as a consumer substitute for industrial wind turbines as a source of power (as compared to industrial wind turbines). What change is predicted in industrial wind turbines if the price of natural gas energy decreases?
Note: For example, in the USA, “fracking technology” has greatly reduced the cost of taking natural gas out of the ground, making natural gas a much cheaper form of energy.
d. Suppose a government subsidy that had been available to the producers of wind turbines is completely eliminated, and the cost of producing wind turbines rises, as the government subsidy is taken away. Predict the change in the wind turbine market caused by the removal of the subsidy.
e. Assume steel is a resource used in the production of industrial wind turbines. If global steel prices decrease dramatically, predict the impact. Does the supply or the demand for industrial wind turbines change? Why? What is the direction of change? Why?
f. Suppose the entrepreneurs who make and sell industrial wind turbines have the technological capacity to readily changeover their production operations to produce smaller residential wind turbines. If the price and profitability of producing residential wind turbines increase, what is the impact on industrial wind turbines?