Costs And Oil Flashcards
What are the gas and electricity industries often considered?
Natural monopolies
Why is the gas and electricity industries considered natural monopolies?
Because the fixed costs for setting up the industries like the power station is too high that it’s more cost effective to have one dominant firm rather than many competing
Why do the government intervene in the gas and electricity industries to prevent what from happening?
They regulate the industry to prevent abuse of market power
What are the price in gas and electricity markets influenced by?
Factors like fuel prices, international trade, conflict in the Middle East, government regulation
What are some of the ways the government intervene in the energy market?
Price caps and subsidies
Carbon pricing and environmental regulations
Market liberalisation
Regulated monopoly prices
What do price caps do?
Protect consumers from high prices
How might governments provide subsidies?
Renewable energy
To encourage production and consumption of cleaner resources
What have many countries implemented in terms of carbon emissions?
Carbon pricing (carbon taxes or trading schemes)
This addresses environmental externalities
This raises the costs of fossil fuels
Encouraging investment in cleaner resources
What have some governments done in terms of competition in the energy market?
They have liberalised the market
Allowing private companies to compete in the generation, distribution and supply of gas and electricity
The aim is to reduce prices and increase efficiency
How do governments regulate monopolies?
Regulators ensure monopolies don’t exploit their market power
What’s the positive and negative of renewable resources?
The cost of renewables has dropped in the recent years becoming more cost effective
However initial infrastructure investment is still high
Which is why they should be subsidised as an incentive
However they may not be able to produce energy in the same scale as fossil fuels Encouraging investment
