The UK Big Six Energy Companies

Part 1

Ed Miliband if elected in 2015, proposes that he will introduce a 20 month price freeze on all the energy companies. Performing that, will result to the break up of the big six suppliers so that their wholesale power producing activities could be separated from their retail supply business.

This act though will have implications on both, the suppliers and the consumers, in the short run and the long run.

Currently there is an excess demand meaning that the quantity demanded exceeds the quantity supplied, due to the fact that the equilibrium is high. The equilibrium price of a product is determined at the intersection of the market demand curve and the market supply curve of the product. (Salvatore, 2007)

Therefore an excess in demand will make suppliers to rise up their prices so that demand will decrease in order to make profits but this would not be able to occur during the price freeze because there will be no equilibrium.

In the short run there will be no shift in either demand or supply because the government will set up a maximum price below the existing equilibrium and will enter market disequilibrium. Since the equilibrium price will be lower, suppliers will have to reduce their output and this will result to a downward movement on the supply curve. Since the output will be lower consumers will have to restrict their demand and this will result to a downward movement on the demand curve. (Salvatore, 2007)

This will affect suppliers and consumers as well. Suppliers will not make excessive profits since demand will not change and consumers will be affected with blackouts and power shortage. Demand therefore will be inelastic since there will be little response in quantity demanded to a change in price.

Howeve...

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Business ethics are moral principles on how a business should behave. Law regulations play a crucial factor in business and generally a business should establish a trust relationship by taking into consideration the needs of stakeholders, shareholders and the government. (http://businesscasestudies.co.uk/anglo-american/business-ethics-and-corporate-social-responsibility/what-are-business-ethics.html#ixzz2z4gH4Vl9)

Concerning the big six energy companies as seen the claims above, even though they avoid legally the tax payments, it is noticeable that there is an unethical business position that is being used since they face a principal-agent problem. Managers are more interested in maximizing their benefits rather than maximizing their company’s profits and this is exactly the opposite with business ethics. (Salvatore, 2007)