Price elasticity arises where a small change in pricing results in a change in the quantity of something, either making it more abundant or scarcer. Elastic demand occurs where the need for something is essentially not absolute: Should someone who wants to buy a car discover the price has risen by a lot, they will not buy the car. This is elastic demand.
• Subjective Factors.
When a consumer can swap suppliers of electricity, this influences the criterion for elastic demand. This may be an entirely subjective decision for the consumer, and outside the ability of the theory to predict which way this will go.
• Supply Elasticity.
Should an electricity supplier wish to supply more electricity to consumers, it will take time to construct, test and commission a new generator plant. This is measured by supply elasticity as in the long run, prices will always rise for electricity rather than decline.
• Increasing Cost Prices.
The need to upgrade technology to take into account dwindling resources such as coal or gas in contrast with the need to exploit new resources such as solar or wind power will again throw up cost problems, driving up the prices.
• Sales Tax.
Where sales taxes are imposed, the burden is supposed only to fall on the consumer. In reality, it is borne equally by the supplier and the consumer as the consumer's ability to change suppliers makes it harder for suppliers to charge more: A cheaper supplier, regardless of the tax, will more likely be switched to. When supply is inelastic, the cost is borne by the consumer, but in times of elastic supply, the tax burden shifts more to the sellers as a means of inducing customers to be supplied by them.
• Subjective Factors.
When a consumer can swap suppliers of electricity, this influences the criterion for elastic demand. This may be an entirely subjective decision for the consumer, and outside the ability of the theory to predict which way this will go.
• Supply Elasticity.
Should an electricity supplier wish to supply more electricity to consumers, it will take time to construct, test and commission a new generator plant. This is measured by supply elasticity as in the long run, prices will always rise for electricity rather than decline.
• Increasing Cost Prices.
The need to upgrade technology to take into account dwindling resources such as coal or gas in contrast with the need to exploit new resources such as solar or wind power will again throw up cost problems, driving up the prices.
• Sales Tax.
Where sales taxes are imposed, the burden is supposed only to fall on the consumer. In reality, it is borne equally by the supplier and the consumer as the consumer's ability to change suppliers makes it harder for suppliers to charge more: A cheaper supplier, regardless of the tax, will more likely be switched to. When supply is inelastic, the cost is borne by the consumer, but in times of elastic supply, the tax burden shifts more to the sellers as a means of inducing customers to be supplied by them.
