澳洲作业代写 Report On Rise In Electricity Pricings

Singapore buys natural resources from other countries as it is a small country lacking in natural resources. Due to the limited amount of resources and increasing demands, scarcity occurs. Therefore resources such as electricity, oil, water, etc comes with a price. The rise and fall of the price depends on a few factors.

In this report, we would be talking about the raise of electricity pricing in Singapore which is controlled by Singapore Power Services (SP).

2.         Findings

2.1     Monopoly Characteristics

The SP is a monopolist firm as it is the only seller of a product with no close substitutes available in Singapore to provide each household with electricity supplies. It's shown from its monopoly characteristic.

Barriers to Entry

SP is a legalised firm by Singapore's government. SP is a licensed company and have the authority to supply electricity given by the government. "According to SP Services, a subsidiary of the Singapore Power Group "(Teo, 2010) This shows that SP is a firm subsidised by the government. This support from the government caused new firms to be unable to enter the market easily as the subsidies allows them to provide a cheaper services and goods to the consumers. This factor allowed SP to dominate the market in supplying electricity throughout Singapore in the long run.

 澳洲作业代写 Report On Rise In Electricity Pricings

 澳洲作业代写 Report On Rise In Electricity Pricings

Price Maker

一个垄断企业的最重要的特征是进入壁垒，因此公司成为价格制定者。SP是一个强大的进入壁垒阻止新公司进入市场的垄断企业。这给了市场一个强大的市场力量。随着市场的力量，一个价格的制造商，因为它有能力改变电价的定价。”从7月1日到9月30电的成本将提高2.42个百分点，电力零售商SP服务昨天宣布的。”（张，2010）。这表明，公共服务的服务有能力改变电价的定价，通过向公众宣布。此外，虽然SP是价格制定者，价格的稳定性仍然是由能源市场管理局（EMA）的监测和控制。

The most important characteristic of a monopolist firm is barriers to entry hence the firm becomes a price maker. SP is a monopolist firm with strong barriers of entry to prevent new firms from entering the market. This gives SP a substantial market power. With the market power, SP is a price maker as it has the ability to change the pricing of electricity. "From July 1 to Sept 30, electricity will cost 2.42 per cent more, electricity retailer SP Services announced yesterday. "(Teo, 2010). This shows that SP Services have the ability to change the pricing of electricity by announcing it to the public. In addition, although SP is a price maker, the stability of the prices is still being monitored and controlled by Energy Market Authority (EMA).

Short Run and Long Run

In the short run, a monopolist firm may experienced an economic loss. It could be due to the rising costs of production or the falling of quantity demanded. Therefore the firm is needed to raise its prices as well as its level of output in order to achieve a normal profit or maximum profit in the long run. As in this case, SP is experiencing an economic loss due to the rising costs of production. If this loss suffered by SP continue, SP may have to shut down its business.

2.2    Changes in Market Equilibrium

The change in of both price and quantity equilibrium of electricity are due to the increasing demand and decreasing supply of electricity. This results in an increase in price equilibrium while quantity equilibrium remain the same

The decrease and increase of demand and supply curve is due to the few determinants of demand and supply which caused the curve to shift.

Demand of Electricity

This shows that the increase in demand is due to the improved economic activity hence there is a rightward shift in the graph.

The improved economic activities allowed the consumers to have an increase in money income which leads to a higher purchasing power. Thus the demand of electricity increases, causing the demand curve to shift to the right. As mentioned in the article, 'Clearly, electricity demand has been picking up because of improved economic activity' (Lim, 2010)

This increase in demand is also due to the consumer's expectation of the upcoming increase in price, resulting consumer to consume more electricity before the price increases. Shifting the demand curve to the right. It's shown in "ELECTRICITY prices will rise by an average of 2.42 per cent this quarter " (Sim, 2010)

Supply of Electricity

The price of electricity usually increases along with the price of fuel oil. Singapore used this fuel to generate electricity, thus decreasing the supply of electricity. As the supplier would prefer to sell fuel instead of electricity, this factor which caused the supply curve to shift is called substitutes in production. Â

Since the producer is more willing in producing oil, there will be a fall in electricity production, causing the supply curve to shift to the left.

The quantity supplied of oil increases, as the SP is more willing to sell it. The increase is represented by the upward movement along the supply curve.

However, the current increase in price of electricity is due to the higher costs of production. Causing the supplier to charge a higher price for every output level and a leftward shift in supply curve. It is all shown from " While previous hikes were due to the rise in fuel oil prices, this round of increases is due to the 'higher capital and operating costs of power generation'. " (Sim, 2010)

The higher costs of production and the producer's expectation has resulted a left shift in supply curve of electricity.

The decrease of supply is also caused due to the expectation of the producer. As the producers is expecting an increase in electricity, they will sell less goods, keeping it until the price increase. Which eventually caused a left shift in the supply curve.

2.3 Elasticity of Electricity

The increase in price of electricity have affected everyone's' daily life. Even with the raise in price, consumers are unable to cut off the usage of electricity as it has become a necessity to them. Hence it is price inelastic as well as income elastic towards a higher income families, this is shown in the article, "Their higher salaries will probably offset the higher electricity prices "(Teo, 2010)

However for those lower income families, electricity is both price elastic and income inelastic as they have to reduce the usage of electricity to minimum as the income spend on it is greater compare to those who earned more.

 澳洲作业代写 Report On Rise In Electricity Pricings

 澳洲作业代写 Report On Rise In Electricity Pricings

It is shown in "the tariff hike is expected to have the greatest impact on lower-income families " (Teo, 2010)

"Her family turns on two air-conditioners at night, and sometimes in the afternoon as well, due to the unpredictable weather " (Sim, 2010) From this example, we can conclude that even with the raise of price, Mrs Lui is unable to stop using the air-conditioners due to the unpredictable weather. This imply that electricity is a price inelastic.Â

2.4    Effects of the Increase in Price of Electricity

    The increase in price of electricity has affected the lower, middle and higher income people in many ways as well as the supplier. This causes the lower income families to reduce their electrical usage in order to minimize and ensure that they have enough cash to spend on other necessity such as foods and clothing.

Increase in Revenue

As electricity is price inelastic; an increase in price will result in a small decrease in percentage of quantity demand for electricity. It also produces revenue for the firm. By increasing the price of electricity per kWh, SP could earn more revenue to cover up the high operational cost of power generation. Thus this would allow the firm to achieve a normal profit or even an economic profit for it to continue generating electricity.

" higher capital and operating costs of power generation - which cover manpower and maintenance costs of operating power stations " (Teo, 2010) This shows that the increase in revenue is needed for the firm to cover its total variable and fixed costs to continue its business. It also shows that the total costs came from the cost of using resources such as labour, land, capital as well as entrepreneur to operate the power stations and this cost is called explicit costs.

2.5    Reducing Cost

The increasing electricity pricings has caused the government to step in, helping its people, and ensuring that everyone in the country is able to enjoy and use electricity. It also has created awareness among the individual to find certain ways in reducing their electrical bills. However the firm also can help to reduce the electrical bills by minimising the cost of production.

Government

The government have imposed price ceiling to prevent the price of electricity to be overly charged. Therefore the government have subsidised the firm, causing the firm to be able to give a lower price for the citizen. This is shown as Singapore Power Services (SP) is a subsidised Singapore power group.

Individual

In order to accommodate with the raise in electricity bills, people could use substitute brands such as energy saving electronic appliances such as light bulb.

"Some energy saving tips on the EMA website include switching off appliances at the mains, setting the temperature of the air-conditioner to 25 deg C or higher, and buying energy-efficient electronic."(Sim, 2010) This shows that consumers have to switch to alternatives such as using energy-saving brands or other saving energy means in order to reduce their electricity bills.

Firm

The firm could help reduce the cost of electrical bills by reducing its cost of production. In the way that it is only needed to increase the price at its minimum. It can be done by preventing the congestion and overcrowding in the power stations as it decreases the productivity level and also by having specialisation and division of labour. Specialisation will help increase the productivity level as the specialist is well experienced, thus it makes the work to be done way faster. While division of labour will help increase the productivity, as the workers are divided into different task, causing them to do work way faster.

By doing all this, productivity level will increase, lowering the cost of production. The firm also can reduce the cost of production by hiring a certain amount of worker, giving the firm benefits. As hiring excessive amount of worker will cause the company to spend extra money with a lower production rate. This is due to the law of diminishing returns.

SP could ensure that they have hired the correct amount of workers by comparing the marginal revenue product (MRP) with the wage rate. If the MRP is bigger than the wage rate, SP should hire more workers until the MRP is equal to wage rate or nearest. These will tell SP how much variable inputs to be employed.

2.6 Monopolistic Competition

The usage of alternatives energy-saving appliances to reduce the electricity bills has created a monopolistic competition (MC) among electrical appliance firms as the products they produce are not identical as well as not homogeneous but they are close substitutes to each other. However, product differentiation of each firms defines the customers decision in choosing which type of appliance to be bought from. This differences consist of the location where the goods are available in the market, the difference in its physical appearance, the services provided as well as the brand popularity.

It will eventually cause the demand for energy-saving electronic appliances to be more price elastic as there are a greater number of substitutes available to consumers.

Due to these increase of pricing, the demand of electronic appliances will increase. Shifting the demand curve to the right for electronic appliances. Example of the electrical appliances firms are Philips, Sharp, and other more firms. These firms are similar to SP as they are also a price maker. However it is differ as well, as MC firms have to lower down its price to attract more buyers via product differentiation.MC firms also have a gentler and a more price elastic demand curve than monopoly firms, SP.

Conclusion

On the whole, the microeconomics topics covered in these three articles are Monopoly, Monopolistic Competition, Elasticity and Demand. As there is only a handful amount of electricity suppliers and electricity is a necessity towards the consumers, these electricity suppliers are known as monopolist