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none well done Jennifer Loughery 082970 Introductory to Micro-Economics 1011-107 Dr Pryor November 25 1996 Back in the middle of October the price of natural-gas had risen because a gas company was forced to shut down a pipeline due to the need for repairs This impending shortage led to the decrease in prices for other heating commodities as well as larger profits The demand for energy was becoming greater and greater because it was that time of year when consumers began storing energy in their homes to prepare for the cold winter months ahead The four commodities mentioned in this article crude oil heating oil gasoline and natural gas are all substitutes for one another This is true because the cross elasticity of demand states that as the percentage change in the quantity demanded of one commodity results from a one percent change in the price of another commodity In other words the increase in demand for crude oil gasoline and heating oil was the outcome of the price increase in natural gas As shown in the graph below the cross elasticity of demand is direct positive As the price of natural increases the quantity demanded for the three other energy commodities increase The market system today functions on price Consumers make their decision on what to buy by the price of their desired good Naturally consumers will choose the lower price of a commodity they wish to purchase This is why consumers wanting to heat their homes chose to heat them with natural-gass substitutes crude oil heating oil or gasoline rather than the natural-gas the higher priced commodity The commodity energy is something that people can not go without during the winter months If their is a shortage which means that consumers demand more than the available supply it leads to an increase
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