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Supply and demand

Blas MOLA-YUDEGO

Summary

There are different policy based instruments that can affect markets in order to fulfilled objectives. The justification of this interventions is based on the role that different externalities play in the market development of these commodities. In the case of bioenergy, this is a fundamental topic that largely affects its implementation. There are different tools, from more aggressive approaches such as quotas and restrictions, to more subtle as promotion campaigns, green labeling or even research grants. Two commonly used instruments have been subsidies and taxes. Both act of the supply and demand curves, modifying the equilibrium points, and restricting or expanding the amount of the commodity in the market and their prices. This effect, however, is not equally distributed between the producer and the consumer, as it is related to the elasticity of the curves. The study of the elasticity will therefore help in assessing which agent, producer or consumer, obtains the main benefit (in case of subsidies) or carries the main burden (in case of taxes).

Suply and demand

Supply is the amount of the good that is being sold onto the market by producers. At higher prices, it is more profitable for firms to increase supply, so supply curve slopes upward (Pettinger).

Demand is the quantity of the good that consumers wish to buy at different prices. At higher prices, less will be demanded. As prices fall, more will be demanded (Pettinger).

Elasticity

 

The effects of subsidies and taxes on a market with different elasticity on the supply and demand curves are not the same.


Fig 1. A subsidy or a tax may have a very moderate effect on the size of the energy market's when either the suppy or the demand curves are very inelastic (steep curves).

 

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