The paper “ Applied Analysis of the Carbon Price Mechanism in Australia” is an excellent example of the case study on macro & microeconomics. In an effort to reduce carbon emission, the Government of Australia proposed the operation of a carbon price mechanism. To understand its likely effects, this paper will study the consequence of rising energy prices on the economic wellbeing of households. Secondly, the paper will analyze the possible effects of the increased cost of traditional energy sources. This will be compared with the change in consumption patterns of Australian households.
The last part of the essay will focus on how government cash payments influence household budgetary allocations, energy consumption patterns, and the wellbeing of consumers. Effects of rising energy pricesThe economic wellbeing of a household is often determined by the ability of a household to maintain minimum living standards by using its economic resources. These economic resources i. e. income and wealth, ultimately provide a means by which each household meets their consumption of goods and services. Since most households depend on the income to satisfy their consumption, low-income earnings imply that the families would not be able to achieve certain standards of economic wellbeing.
From this scenario of economic wellbeing, it is apparent that changes in energy prices have a direct impact on disposable income, which is an economic resource. Consumption expenditure of a household is likely to be affected by changes in energy prices in four different ways. In the first context, higher energy prices reduce discretionary income since consumers would now have fewer funds to spend after settling their energy bills. Where the demand for energy is less elastic, the income effect will be larger.
Even in a situation of perfectly inelastic demand for energy, any changes in price would have an impact on energy share in consumption. While consumers may choose to borrow money as a response measure to rising energy prices, this is only short-lived. In the end, the purchasing power of the consumer declines.
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