Business Economics Assignment

A recent, tragic power explosion at the Mari naval base was the beginning of a new era in Cyprus. It acted consequently as the start of great conflicts and huge debates that are being daily written in the local press. One of the hundred articles written after the explosion was the article written by Natasa Evripidou for the “Simerini” local newspaper that raised the issue of the increasing demand for electric generators due to the unexpected arrival of power cuts that were caused due to the insufficient supply of electricity from the Electricity Authority of Cyprus.

This summary of the particular article will outline the most important points of the paper and will critically evaluate the opinion of the author on the topic of increased demand for electric generators after another “black July” in Cyprus.

To begin with, as the author has stated, electric generators became unexpectedly crowd-pleasing after the fatal explosion at the “Evangelos Florakis” naval base on July 11th since many were those who came with the solution of acquiring an electric generator from the market in order to avoid unexpected power cuts in the height of summer.

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Twenty days after the several billion euros worth of damage to the island’s biggest power station, the article describes the difficult situation that businesses, industries, as well as households, faced due to the continuing and unexpected power cuts. The second important point mentioned in the article after that of increased demand of generators in the market, is that professionals in the trade of electric generators are concerned that accidents might occur due to the poor installation of the generators in homes and estates.

According to companies’ representatives with many years experience in the narrow market of electric generators, small and big businesses in general, were supplied with generators soon after the incident in order to secure the quality of goods they put on the market. Specifically one of them stated that, very early, they sold all the generators they had in stock but the demand is still high and that they are already in the process of ordering and importing large numbers in order to satisfy their customers. The high demand represents all types and sizes of generators beginning from €600 and can even go over €200,000. Due to the fact that consumers ask for them “yesterday” and want them “today”, representatives get supplied from other countries in Europe as their stock will very soon not be available for sale. In addition, the author refers to the occurrence of generators of bad quality in the market that do not meet the specific standards of the European Union, posing serious problems to individuals and properties. Further, the author suggests different measures in the case of installing an electric generator in order to secure the smooth and continuous operation of critical facilities, such as refrigerators or operating rooms, avoiding power cuts from the main source of electricity that may subsequently increase costs.

At this point it is important to make a critical analysis of the key points mentioned in the article. As a natural consequence, after July 11th huge problems have been created. The most significant was the lack to cover island’s electricity power demand. Therefore, the only way for individuals and businesses to overcome the problem was to purchase their own power generators in order to satisfy their demand. As soon as power cuts begun to emerge, the quantity demanded for generators has increased significantly.

In economic terms this event raises the quantity demanded at any given price shifting the demand curve to the right. Subsequently, a new equilibrium point is formed as both price and quantity rise and a movement along the supply curve is being observed. Power generators are considered to have an inelastic demand as it is a necessity, for the moment, but because it does not have a close substitute as well. People nowadays require electricity for almost everything, but the most important is lighting, warming houses and cooking their meal. Businesses as well require electricity to sell their goods and industries need it to produce their goods. Therefore in this case, the quantity demanded does not respond strongly to a change in price and elasticity is less than one. It can also be shown that the demand is inelastic since price and total revenue move in the same direction. At the same time, as there is a movement along the supply curve, more generators will be supplied by the sellers. The supply of electric generators depends as well on the time horizon. Similarly to demand, supply tends to be inelastic in the short run. Since elasticity of supply depends on the flexibility of sellers to alter the amount of generators they are able to sell, quantity supplied is inelastic as sellers require time to produce or order more and be able to respond to the needs of the consumers. According to the article there is excess demand for generators and that the stock of sellers will soon come to an end. Subsequently the market price of a generator is below the equilibrium price.

In respond to this shortage the sellers may raise their prices so that they will not lose sales. Therefore there will be an upward pressure on the price to decrease demand and increase supply so that the market will eventually come to equilibrium. At this point it is important to declare that in the article the author did not extend her arguments in order to describe the future consequences of this increase in demand for generators, except from mentioning about the danger of generators of bad quality. As a consequence to this increase in demand, producers of goods may increase the prices of goods they sell since they paid a lot of money in acquiring a generator and the cost of production has increased substantially. Therefore this may decrease the quantity demanded of another product if it is a compliment good. For instance, when computer manufacturers increase the prices of computers because of the increase of costs in production, this event will decrease the demand of software. (Mankiew et al., 2008) Similarly when sellers increase the price of a good that it is substitute, for instance theatre tickets due to an increase in production costs because of the generators, the demand for cinema tickets will increase.

It is important to mention that on 22nd July, Ministry of Finance announced that oil used for businesses to operate their generators will be sold cheaper by 33 cent. (Simerini, 2011) Moreover, the author has analysed the fact that some sellers put on the market generators of bad quality raising even more problems. Undoubtedly this fact is reasonable since the dangers that they can cause in the society and the economy as a whole can be enormous. In addition to this, the press has recently raised the issue of environment pollution and huge gas emissions due to the constant usage of generators (Philelephteros, 2011) Specifically, a few days ago, the chairman of Parliamentary Health Committee, Costas Constantinou, stated that the government and society need to be aware of the possible consequences to the environment and public health and security and various measures need to be taken. Costs will eventually become higher due to the consequences of the well-known global warming effect and measures that meet the EU standards will need to be met. Businesses and companies need to make sure that they offer a safe environment for their employees avoiding any accidents caused by the generators.

To sum up, various individuals will doubtless be made accountable for the tragedy at the Mari naval base and the Electricity Authority of Cyprus will gradually regain its full generating capacity. Electric generators may be a temporary solution to the problem, however this raises many issues. A crucial one is the unexpected increased demand that created a shortage. As a result prices of goods may increase due to the increase of costs of production and the danger of pollution from the emissions of generators introduces new problems to the islands economy. However, the damage to the economy could hardly have come at a worse moment given that the government and opposition parties have been attempting to agree on a package of measures to ensure that the island does not go the way of Greece and require an EU bailout.