CAP AND TRADE POLICIES

Introduction

Caps and trade policies are one of the factors that affect the operations of certain markets. Trade policies may affect a country either positively or negatively depending on how the market responds. The people formulating this trade polices therefore need to be cautious about their impacts on supply and demand of the products concerned.

In this case, apart from the energy market itself being affected by this cap and trade policies, other markets that are likely to be affected include agricultural produces and raw materials for manufacturing products among many others. The reason why these markets may be affected is because the consumers consume them in larger quantities and therefore cannot be done away with. Such products are very important in the stirring up of the economy and are important in such markets. The second reason is that such products are key in the operation of the country economy and therefore without them, the economy is at the risk of collapsing.

According to the Jeffry (2010), different stakeholders hold different views on the caps and trade policies that California wants to adopt in its energy sector. Some quarters are supporting the caps on California’s greenhouse gas emissions whereas others are opposed to such a move. In my view, if the caps and trade policies on green gas emissions are not capped as agitated by energy industry and anti-tax groups, then the supply of green gas emission will increase in the short run. Demand on the other hand will remain the same or will have to increase as the prices of the commodity will fall increasing the demand. Therefore, to this regard, the supply curve will increase and then consequently triggering an increase in demand. The shifters that will be affected is the demand. Demand of the greenhouse gas emission or rather energy will increase due to decrease in the prices since the supply will be more.

The supply curve shows the relationship between price and the quantity supplied at a given time (Tutor2u, 2012). The curve usually shows an upward slope. When the prices are higher, higher quantities of energy will be supplied. Therefore, producers will supply more since they will sell more energy at higher prices, which will increase their revenues.

On the other hand, demand curves show the relationship between the quantity of products demands at certain prices. When goods are at a higher price, demand of such goods tends to decrease and vice versa. When prices are higher, consumption of the goods tend to decrease and vice versa. The curve is therefore a downward slope.

At equilibrium, the demand and supply intersect therefore are equal (Investopedia, 2012). At this point, the economy is said to be efficient since the amount of goods supplied is enough to satisfy the demand. Therefore, at this point consumers get all the goods that they are demanding as producers sell the products at a given price.

If the cap and trade policies will not be implemented, the equilibrium price is going to reduce as the equilibrium quantity will increase. The reduction in the price will be as a result on increase in supply, which will drive the prices of the energy down. This decrease in prices will lead to increase in the quantity produced since the cost of production will not be high to drive away investors.

In my view, I am satisfied with my expectation. I therefore agree with the energy industry and other groups such as antitax group that California plan of capping greenhouse gas emission should not be implemented since it projects hard economic outcomes. This will reduce the amount of energy supplied, which is going to have first hand effects on the consumers. This is going to make the prices to skyrocket making the living conditions of the citizens much hard. It will also lead to stagnation of certain sectors of the economy such as reduction in employment rate.

References

Jeffry, B. (2010). California’s Cap-Trade law faces fall ballot challenge. The Wall Street Journal. Retrieved form: http://online.wsj.com/article/SB10001424052702304620304575165843688369042.ht ml?mod=WSJ_hpp_sections_news

Investopedia. (2012). Economics basics: demand and supply. Retrieved from: http://www.investopedia.com/university/economics/economics3.asp/#axzz249pIiZJX

Tutor2u. (2012). Essential guidance on economics exam technique. Retrieved from: http://tutor2u.net/economics/revision-notes/as-markets-equilibrium-price.html