Evaluation of an article written by Natasa Evripidou for the Simerini local newspaper on the topic of electricity shortages in Cyprus and the demand for generators.

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.

[13 September 2011]

Bibliography

Gold (2011) Power station and naval base destroyed-Editorial. IMH. Nicosia:2011

H Shmerinh (2011) Περιζήτητες οι γεννήτριες. URL:  

N. Gregory Mankiew, Mark P. Taylor – Economics (2008) South Western Cengage Learning. London:2008

O Phileleptheros (2011) Γεννήτριες ηλεκτρικής ενέργειας και μετρα προληψης ατυχηματων. URL:  [12 September 2011]

Sigmalive (2011) 33 σεντ φθηνότερα το πετρέλαιο για γεννήτριες επιχειρήσεων. URL:

Sigmalive (2011) Αυξημένη εκπομπή ρύπων από τις γεννήτριες.  URL: http://www.sigmalive.com/news/local/417070 [8 September 2011]