Question

Suppose that citizens fear electricity shortages in the near future. Could we see a “run on...

Suppose that citizens fear electricity shortages in the near future. Could we see a “run on electricity” that leads to shortages today? Why or why not?

Suppose someone says, "The experience in Colorado shows that the law of demand does not apply; higher prices do not necessarily reduce the quantity people buy. Just after the hurricane, the price of gasoline increased, but the quantity people bought went up even more, so there were long lines." Is this person correct?

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Answer #1

Answer 1:

If there is fear of electricity shortages in the near future then then it will not lead to run on electricity because electricity cannot be stored by the individuals in their homes. This applies in case of products that can be stored. Thus, fear of electricity shortages will not lead to run on electricity.

Answer 2:

No, the person's statement is not true. This is because law of demand applies on all goods except for some good which are called as Giffen goods. Also in the above case there was increase in demand because of the shortage of gasoline earlier. Thus, the principle of law of demand applies in all cases.

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