BEC4008 Business Economics Assignment Sample
You need to write one essay of up to 2000 words (not including reference list).
Assignment topic: In 2021 the United Kingdom faced a ‘gas price crisis’, in which the rapidly rising price of natural gas had a variety of effects on the UK economy. Discuss the causes and effects of this crisis in relation to the economic concepts you have learned, describing potential short-term and long- term effects on both the natural gas market and other markets as well as the UK economy as a whole, considering both demand side and supply side effects.
Guidance Notes: You will need to read news sources about the gas crisis and reference them in order to give some description of what happened; make sure you reference your sources, using Harvard (author-date) referencing. The university provides guidance on referencing at https://study.cardiffmet.ac.uk/AcSkills/Pages/Referencing.asp x, which includes links to useful resources such as ‘Cite Them
Right’ which show you how to include references for different sorts of sources, such as web pages, books, journal articles, etc. But don’t spend your whole essay just describing what happened! It’s very important that you use your answer to show your understanding of the economic ideas you’ve been learning. In each part of your essay, try to explain the relevant economic ideas or parts of the economic models you’ve studied, and then use that to explain or predict effects on the market you’re considering. It may help to break your essay into sections with their own subheadings.
It's ok to research and reference things other people have written about the economic causes and effects (and if you use ideas from other people’s writings you MUST reference them, otherwise you could be committing plagiarism), but the important thing is always to give explanations in your own words of the fundamental economic ideas. Try to bring in as many of the ideas from the course as you can, but only if you can make a sensible argument for how each idea applies to the real-world example you are analysing.
Make sure you upload your essay to the submission point on Moodle before the deadline
Leave it to the very last minute on deadline day, in case you have technical problems. If illness or other circumstances out of your control prevent you being able to complete the assignment in time, remember that you can apply for an extension through the Mitigating Circumstances procedure – look for the Mitigating Circumstances link on
https://outlookuwicac.sharepoint.com/sites/students/SitePages/tools-and-resources.aspx for the form to fill in, and ask your personal tutor if you’re not sure how to do the application.
Learning Outcomes Assessed for assignment help
1. Examine the theoretical underpinnings of consumer behaviour and producer behaviour
2. Demonstrate understanding of how prices, quantities and technologies change
The increase in natural gas prices could be caused due to a wide array of factors. The impact of a price hike would be severe in a nation, if necessary measures are not taken from the end of government to compensate for the rapid rise in fuel prices. The gas price crisis of 2021 in the UK stands to be the main theme of the study, as the objective lies in the review of the incident with the application of economic concepts and models. The demand and supply concepts of economics would be used to systematically address the short-term and long-term implications of gas price crisis in the UK.
Causes and effects of the gas price crisis in the United Kingdom during 2021
The gas price hike during 2021 reflected the energy adversity faced by the UK, as sourcing of natural gases rattled the overall situation in the energy sector. The seasonal demand can be identified as one of the major promoters for the gas price crisis, as the winter season requires residential heating measures to a severe degree. In relation, the UK government always looks to take advantage of the summer season, thereby taking advantage of low prices and acquiring gas shipments for making the heating cost more economical for the people. As per the views of Saif-Alyousfi et al. (2021), the increase in gas and oil prices aids the cash flow for the banking units in a nation. Likewise, the case is no different for UK banks, as they also tend to benefit from the price increase of natural oil and gases, while some of the banks would be under pressure to escalate the interest rates, such as the Bank of England. In addition, the natural gas storage facilities seem to have a heavy influence over the natural gas prices, as a higher degree of inventory levels ensure that the supply and demands are met without disruptions, thereby leading to a drop in gas prices. In comparison to the European nations, the UK boasts only 8.9 Thermal Watt-Hour (TWh) gas storage capacities.
It is feared that the energy suppliers for the UK would soon collapse due to geopolitical threats. The economies have started to recover since the inception of the Covid-19 pandemic, whereas the cold weather in the UK is responsible for the depletion of the existing set of energy sources. As per reports, the prices of gas are found to be quadrupled over the last year to highs of 180 pence per thermal, from around 40p/the in the month of September, 2020 (Ambrose, 2021). Apart from that, it is also observed that the flows of pipeline gas to Europe from various sites over in Russia are unable to make up for the shortfall. As per the Heckscher-Ohlin model countries export the products that they are able to produce in mass quantities. It addresses the ways by which trade measures should be exercised by the nations.
On that note, UK being a poor producer of gas is unable to get the scope for export. As for the 2021 gas price crisis in the UK, the global gas crunch has played a pivotal role in contributing to the overall event. Furthermore, the detrimental event is shaped by the generation gap shared by the UK, as half of the UK’s electricity is known to be developed from the burning of fossil fuel. Nonetheless, the reliance on natural gas for residential purposes has made it quite cumbersome for the government to manage the gas price crisis.
The power shortage in the UK is justified by reports where it is seen that even shorter than 1% of Europe’s stored gas is currently kept by UK. The alternative energy sources are also under the scanner, as the UK's nuclear power plants, that has the capacity to supply up to 20% of electricity, would soon be having a closure date, having no major replacements.
According to the study by Mensi et al. (2021), increased inflation and reduced economic growth occur due to the price hike of natural gas and oil. Moreover, the cost of producing goods also creeps up with the oil and gas prices. It is reported that the Ministers are having a reliance on out-dated energy security policies. Likewise, the concern in regards to the current tension between Russia and western leaders is impacting the gas prices to rise even further in the UK. As per reports, a record closing price at 322.5 pence per thermal is found to be observed during the month of December 2021 in the UK (Ambrose, 2021). Russia being one of the biggest gas suppliers to Europe causes even more pressure upon the UK to go along with the crisis without negative implications. On the contrary, less than 5% gas is sourced from Russia (Plummer, 2022). The secured supply of the gas still remains to be a significant moderator of the current gas crisis that started in 2021.
In the case of the 2021 gas price crisis in the UK, the lack of strategy for gas supplies has played a crucial part. However, Of gem, the energy regulator in the UK plans to develop a set of policies to counter the supply crisis and price hike in natural gas. As per the study by Mugaloglu et al. (2021), it is seen that the relationship between stock market prices as well as the oil prices have been affected by the pandemic. In addition, the declining oil prices referred to the decreased the stock market prices in the first months of the pandemic. In relation, the UK faced drastic changes in the natural oil gas segment that also contributed to varied stock values in the market, making it rather difficult for the investors to cope with the situation. According to the views of Wen et al. (2021), both natural along with the human extreme events have the capability to increase oil price risk. In the crisis event, the contribution of Covid-19 in the form of a pandemic can be regarded as significant, as the economic structure weakened with the pandemic impact. The supply and demand models of economics allows for better review of the market demands and compare the degree of changes that could occur for a product based on the price fluctuations.
Economic demand concepts applied for a review of short-term and long-term effects of the crisis
A correlation between consumer confidence and the price of gas is present, for which the demand distribution has to be reviewed to identify the effects of gas price. As stated by Li et al. (2021), geopolitics is able to carry a significant negative impact on the import and export of the energy trade, whereas the natural gas prices show an increase due to it as well. The equilibrium can be addressed as the state where demand and supply are able to intersect. On that note, the demand for gas for energy generation is going to remain high in the UK, as long as there are no alternative energy sources. As for the 2021 gas price crisis in the UK, the cost of goods and services could increase steadily in the short term if the gas prices continue to escalate in the UK. In addition, the gas prices going up for a longer period of time would refer to a consumer demand going upwards. As viewed by Díaz and Medlock (2021), the demand curve is the graphical representation of the relationship shared between product price and the quantity of the product that is demanded. Therefore, it can be stated that the demand would remain the same in the UK in the coming time, whereas the quantity would be lower in relation to the rise in price. The current shortfall of energy is a reason that aligns perfectly with the demand being steady and quantity demand going down. As mentioned by Pellini (2021), the Substitution Effect is a concept in economics that highlights the tendency of people to substitute expensive goods with other goods that have not increased too much in price. However, for the fuel gas, there are barely any substitute products that could be used for beneficial progress in the long run. Apart from that, the substitutes that might be available for natural gas fuel, would not come across to be cheap either. In the case of the 2021 gas price crisis in the UK, the import of other goods in the country could be at risk due to the energy crisis in the short term. The elasticity of demand model is able to address the level of sensitive demand for a good as compared to the changes for the other set of factors in the economic domain. It is also regarded as the price elasticity, whereas the gas as a product cannot be deemed to be price elastic.
The elasticity of demand is known to be an economic measure of the sensitivity of demand relative to a change in price. As per the views of Han et al. (2021), gasoline products act as relatively inelastic products, thereby clearly indicating the fact that the price changes share a bare minimum effect on the demand in the market. As for the 2021 gas price crisis in the UK, the price elasticity of gas tends to be hovering across -0.10 and -0.28. According to the study by Cook (2021), taxes and distribution are found to be some of the factors that impact the pricing of gas. In the UK, there lies a fragile system in terms of storing the gas and there after channelling it for the purpose of meeting the demands that always remains strong, irrespective of the prices. Therefore, the government should rather focus on upscaling the production of renewable energy that would cause people to apply the substitute rule and decrease the demand for gas for energy generation. Unable to do so would generate a long- term energy shortage all across the UK, thereby affecting the living habits of unnumbered residents.
Economic supply concepts applied for a review of short-term and long-term effects of the crisis
Price elasticity aids in the process of measuring the responsiveness of demand to changes in price. For gasoline, being an inelastic product, the costs would not fall, thereby reflecting the fact that the supply curve would shift to the left. However, there are plenty of factors that could influence the supply to halt or maintain a seamless flow such as the infrastructure, demand, taxes as well as subsidies offered from the end of government. As per the study by Aruga (2022), the supply curve goes to show that the price hike responds to a quantity rise as well and vice versa. Equilibrium is hard to be established for a product such as gasoline, thereby creating difficulties for both the producers and people consuming it. In the case of the 2021 gas price crisis in the UK, the automobile industry could be facing long-term sales issues due to the rise in the cost of gas and fuel. On the other side, the switch towards the electric vehicle concept would not be a wise solution either, as facilities required to power the batteries would still share a dependence on non-renewable energy sources.
The suppliers that would be able to deliver gas in the UK have been trimmed due to the inclusion of tough regulations. The energy price cap can be identified as one of those elements that are rising and creating trouble across the supplier base of natural gases.
According to the views of Majid et al. (2021), rules and restrictions of a nation in regards to the import and export of goods and services could cause a severe change in the supply and demand of those items. Tougher financial stress over the small-scale supplier base is causing difficulties for the UK to manage the crisis of gas price hikes in the nation. As for the 2021 gas price crisis in the UK, the oil price increase would stifle the growth of the economy in the long term. As stated by Hamie et al. (2021), the increase in natural gas supplies results in the price going down. However, the present situation in the UK and the geopolitical scenario is not helping the sources of supply to increase by any means. Henceforth, there is an expectancy that the fuel prices would continue to climb up as the supply shortage is to be seen in the coming days. The lifestyle of UK people shall also be under threat as for the winter season the power outage could practically take a toll on the standard of living as certain functions relying on gas energy across the residential areas might not run.
As per the developments across the study, it can be clearly inferred that there is a possibility for the UK to recover from the gas price increase crisis of 2021 in the form of having a better-developed infrastructure and policy to support the souring of natural gases more efficiently. On the contrary, the present-day situation is not favouring the nation, as the cost of gas is continually escalating, thereby hammering the economy in a brutal fashion. If the nation and its people are to resist the demand and supply issues surrounding natural gas, there has to be the inclusion of more secured suppliers for the product.
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