As the world economy has recovered following the Covid19 pandemic the demand for energy has increased. A rise in demand for gas is part of this and the price of gas has increased which has had a signalling and incentive effect on consumers and producers in the market for gas. Gas producers have responded to the opportunity to earn more profit from a rising gas price by increasing the quantity supplied and consumer have responded to the higher gas price by reducing quantity demanded. The higher gas price fulfils the rationing function of price and the market clearing price for gas is reached. The impact of a rise in the demand for gas is shown by an increase in demand from D to D1 leading to a rise in in price to P2.

Household consumers: As the price of gas increases households will pay higher prices for energy. Because energy is often a high proportion of household expenditure this may have a significant affect on household welfare because it reduces the disposable income consumers have to buy other goods and services. This rise in gas price may be particularly important for low income households. In some countries domestic consumers are protected by price controls which limit the price increase they experience.

Business consumers: As a resource input, gas can represent a significant cost to business and the current increase in the price of gas could lead to a major increase in business costs. This will particularly be the case for energy companies that supply households. The rise in business energy costs may lead to a fall in corporate profits and falling employment. Some businesses can protect themselves from rising gas prices by hedging their position in the market.

Gas producers: The rising price of gas may well lead to a rise in profits for companies that produce gas assuming their costs do not rise as fast as the increase in the price of gas. Some gas producers, however, may struggle to increase gas supply if they are operating at capacity and this could limit their ability to increase profits.

Government: As energy prices increase the government may collect more tax revenue from VAT as household expenditure on energy increases. If gas and other producers earn more profit then the government could earn greater corporation tax revenues. There may be costs for the government from the rise in gas price if it has to subsidise or bail out producers adversely affected by the gas price increase.

A maximum price is an upper limit set by the government the price of energy cannot rise above. By restricting an increase in the price of energy low income consumers will be protected from the price increase. This is important for low-income consumers because energy is an important necessity good and it often accounts for a high proportion of expenditure for low-income households.

The problems with applying a maximum price policy in energy might include:

• Excess demand in energy market could lead to shortages and power-cuts.
• Energy companies who are paying a higher price for gas might go bankrupt which makes the energy supply problem worse.
• The maximum price has to be enforced by the government and firms might find their way around the price controls.
• Higher income consumers who do not need the protection of the maximum price still benefit from it.
• If energy companies earn less profit because of the maximum price they might not invest as much in the industry which has a negative effect on the quality of energy provision in the long term.