Microeconomic Analysis Final Report

ECONO545: Project 1 Microeconomic Analysis – Situation B

Project 1 Microeconomic Analysis – Situation B

Introduction

        In Situation B, Cindy is looking at investing into the renewable energy industry. She is looking to invest in the industry of contracting the installation of solar panels on the roof. Cindy has read that families and businesses are saving money by going to solar for their power needed. Also, that there are government back regulation to make solar more assessable to people. Cindy is looking pass the business opportunity for installing solar planes, but that this product can reduce pollution and help save the environment.   In addition, she doesn’t want to risk her life savings investing in a business not knowing if it would be successful or produce enough profits.  This report would help Cindy to decide if she should invest in supplying solar energy. The microeconomics that would be analyzed is demand, change in quantity demand, supply, change in quantity supply, demand and supply determinants, product, cost, marginal and competitive seller analysis.  

       In the United States and most nations in the world, energy is vital in keeping society stable and expanding. Energy provides the ability to aid in transportation, activities in daily living and employment. In the United States, $1.4 trillion dollars were spent on energy in 2013 or 8.3% of the GDP. That translates into an annual cost of $4,149 dollars per person living in the U.S. or $10,918 dollars for every U.S. household spent on energy consumption (Just Facts, 2013). With the great environmental impact seen by the production of energy, there was been more of a call, for renewable energy forms, in particular the use of solar panels on the roofs. Therefore, renewable energy (RE) is becoming an increasingly important source of alternative energies (Nguyen & Omri, 2014).  

Demand Determinants     

        Due to energy shortage, climate change, global warming, government policies and consumers wanting lower or save on utility costs, the demand for renewable energy in particular the use of solar panels has increased (Nguyen & Omri, 2014).  Therefore, the demand increase for solar panels is due to the increased number of consumers or buyers in the market.  Meaning, the market demand is the horizontal summation of individual consumer demands. Thus, the more consumers there are, the greater is the demand. Furthermore, this doesn’t impact supply, the number of consumers in the market is a demand factor, not supply.  

CHANGE IN QUANTITY DEMAND CHART[pic 1][pic 2]

Price

High[pic 3]

P1[pic 4][pic 5][pic 6]

P2[pic 7][pic 8]

        [pic 9][pic 10]

P3        Demand (low price high quantity demanded)

Low                                      

              Q1            Q2            Q3    Quantity

The Demand Determinants that’s been examined for this report are income, consumer preferences, number of buyers, price of related goods and future expectations (Chan, 2014).

Income:  

    Installing PV roof top solar panels could increase the amount of savings for a residential consumer by 50% per month in addition to receiving loan and tax break assistance from the government to install the system (Bennett, 2012).   Therefore, there will be an increase in demand to install the solar panels.  

Consumer Preference:

    With rising energy consumptions the demand for renewable energy are increasing. Solar panels have become more popular than concentrating solar thermal partly because they can fit on a rooftop or a large field, and their prices have fallen considerably (Forbes, 2014).  

Number of Buyers:

     In 2010, America’s total solar capacity was just 2,326 megawatts (MW), good for .22% of the country’s total electricity generation capacity (CleanTechnia, 2014). But the plummeting price of solar modules and increasing efficiency of installation has sent solar skyrocketing. By February 2014, 12,057MW of solar electricity generation had been installed across the country, a growth rate of 418% and 9,731MW in sheer gain. Solar’s share of total U.S. generation capacity now stands at 1.13% and EIA estimates continued growth across the industry (CleanTechnia, 2014).  Today there are more than 500,000 solar PV systems that have been bought and are currently installed in the U.S (Solar power facts: Solar is Growing, 2013). 

Price of Related Goods:

      As the demand for solar energy such as solar panels increase it is expected that the demand for concentrating solar thermal equipment will increase as well.  Concentrating solar thermal is another way or substitute for harvesting solar energy along with solar panels.  The equipment is larger and requires cloudless sky to perform well and the technology thrives in deserts.  The price for concentrating solar thermal is expected to become cheaper (Forbes, 2014).   However, the demand for solar panels would be unchanged.   A decrease in the price of solar panels causes movement along the demand curve which constitutes a change in the quantity demanded, but the demand curve itself would not be expected to shift.

  Future Expectations:

      With the increased concern over the issues related to energy security, climate change, and global warming suggests that there will be a greater reliance on the demand of renewable energy in the near future.  According to the EIA (2006) report, renewable energy is projected to be the fastest growing energy source between now and 2030. It is estimated that world renewable energy consumption for electricity generation will grow by an average rate of 2.6% per year over

the period 2007 to 2035 (International Energy Outlook, 2010) (Nguyen & Omri, 2014).  

       Today, the solar industry employs more than 143,000 Americans who work at more than 6,100 companies, the vast majority being small businesses, in all 50 states. Over the next year a majority of solar energy companies plan to add employees. According to the National Solar Jobs Consensus issued by The Solar Foundation, a nonprofit focused on education, research, and market transformation of the solar industry. Solar industry employers expect to increase their workforce by 24% in the next year, creating 24,000 new jobs (Solar power facts: Solar is Growing, 2013).