Assume there is an increase in the price of electricity (which is the

Assume there is an increase in the price of electricity (which is the result of a decrease in the supply of electricity), and electricity and natural gas are substitutes.

How would this affect the demand for natural gas, and what would happen to the equilibrium price and quantity of natural gas?

ANSWER

The increase in the price of electricity would cause the quantity demanded, as well as the equilibrium quantity of electricity, to decrease. Because electricity and natural gas are substitutes, the increase in the price of electricity and corresponding decrease in quantity would cause an increase in the demand for natural gas. The increase in the demand for natural gas would cause the equilibrium price and quantity of natural gas to increase as well.