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A new more efficient fracking technology has been developed for the production of natural gas in...

A new more efficient fracking technology has been developed for the production of natural gas in several parts of united states. The extracted natural gas is usually transported throughout the USA by underground pipelines. USing supply and demand graph explain the effect of the new technology on (1) The natural gas market (2) the market for elective stoves (3) the market for underground pipeline equipment

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Answer #1

In each graph, D0 and S0 are initial demand and supply curves intersecting at point A with initial price P0 and quantity Q0.

(1) More efficient technology will lower production cost of natural gas, so producers will increase output of natural gas. Market supply will increase, shifting supply curve rightward to S1, intersecting D0 at point B with lower price P1 and higher quantity Q1.

(2) Natural gas and elective stoves being substitutes, a decrease in price of natural gas will decrease the demand for stoves, shifting its demand curve leftward to D1, intersecting S0 at point B with lower price P1 and lower quantity Q1.

(3) Higher production of natural gas will increase the demand for pipeline equipment (an input to production), shifting its demand curve rightward to D1, intersecting S0 at point B with higher price P1 and higher quantity Q1.

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