Microeconomics

Research and discussion of press article About the article | Title of the article : Extension Responds: Katrina’s aftermath : How Hurricane Katrina will affect energy and fertilizer costs? | Source (Newspaper) and link to the article : University of Wisconsin-Madison/Extension http://www.uwex.edu | Summary of the article :In 2005 Hurricane Katrina caused massive shortage on natural gas and fuel in the USA.Due to the location of the hurricane in southern USA, agricultural shipping, fuel production and processing and transport were all affected. On the global market, all of these were already in high demand.As a result of the increase in natural gas prices, fertilizers costs, residential heating and electricity rates rise since they are complementary goods.Another effect of the natural gas prices, some fertilizing plants chose to close while others decided to cut production.On top of all of these factors, a frigid winter would incrementally increase prices unless people would be willing to conserve the natural gas or if the efficiency improves.In conclusion, the growth of demand increases while the supply reduces as storage inventories decrease. | Link with the theory | Which chapter ? Market equilibrium (Chapter 4) | Explanation of the link :We can see in this article that the market equilibrium is disturbed due to the sudden change of the production caused by the Hurricane Katrina.Since natural gas is the most popular home heating resource, the elasticity of demand will be inelastic because the price increases as the quantity decreases.There is an excess in demand and a shortage in production which causes an upward pressure on the price.In order to reach the new equilibrium point, the price increases and the quantity lowers.See the illustration below for better comprehension: