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Jennifer Loughery Back in the middle of October the price of natural-gashad risen because a gascompany was forced to shut down a pipeline due to the need for repairs Thisimpendingshortage led to the decrease in prices for other heating commodities aswell as largerprofits The demand for energy was becoming greater and greater because itwas thattime of year when consumers began storing energy in their homes to preparefor the coldwinter months ahead The four commodities mentioned in this article crudeoil heating oil gasoline andnatural gas are all substitutes for one another This is true because thecross elasticity ofdemand states that as the percentage change in the quantity demanded of onecommodityresults from a one percent change in the price of another commodity In otherwords theincrease in demand for crude oil gasoline and heating oil was the outcomeof the priceincrease in natural gas As shown in the graph below the cross elasticity of demandis direct positive As the price of natural increases the quantity demanded for the three otherenergycommodities increase The market system today functions on price Consumersmake their decision onwhat to buy by the price of their desired good Naturally consumers willchoose thelower price of a commodity they wish to purchase This is why consumerswanting toheat their homes chose to heat them with natural-gass substitutescrude oil heating oilor gasoline rather than the natural-gas the higher priced commodity Thecommodityenergy is something that people can not go without during the winter monthsIf their is ashortage which means that consumers demand more than the available supplyit leads toan increase in price As shown in the graph below as the supply decreasesthe price increases Thismeans that the price is inelastic This is true because as the price of thecommodity isincreased the total amount spent on the commodity will increase also The price mechanism reflects scarcity which is statedas the greater demand for agood energy because of the desire to store it for the colder months aheadwith the samesupply of
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