Answer ALL questions. Each question carries equal weight.
Imagine that you must write a short article for The Economist. The article must use economic theory to answer following questions in no more than 2,000 words (excluding title, references, and appendices):
Energy bills increased significantly in 2022 for both business and households.
a)Suppose energy bills increased significantly in 2022 due to a decrease in energy supply. Discuss how such a decrease in the short run contributes to price increase. (Topic 1)
b)Suppose a household has to purchase food and heat only. Using a budget constraint and indifference curve, discuss how the increase in energy bills can affect how much they purchase of each good. (Topic 2)
c)Given that energy is a normal good, use income and substitution effects to discuss how the increase in energy bills can affect how much energy a household is buying. (Topic 2)
d)Through the Energy Bill Relief Scheme, the UK government will provide all businesses with a discount on their energy bills. Explain how this discount can be decisive between a price-taking firm shutting down or not in the short run. (Topic 3)
Your arguments must be written concisely, and you must be selective in the information you include. Your aim should be to convey the key points in a clearly structured answer.
Refer to the module’s Moodle for detailed information.
