Explaining the causes of your issue
What the criterion requires
- Achieved requires "providing an explanation of causes of the contemporary economic issue using economic models".
- Two requirements in one sentence: a cause, and a model.
The structure of a cause explanation
Every cause needs the same four steps:
1 — Name the cause specifically.
- Not "demand went up" — "immigration and internal migration increased the number of households seeking rentals in this city by X between year and year".
2 — Say which curve it moves, and why.
- Does it change how many buyers want the good, or how much sellers can offer?
3 — Shift the curve on the model and read the new equilibrium.
- Name the labels: D to D1, Pe to Pe1, Qe to Qe1.
4 — Say what that means for the issue.
- Connect the new equilibrium back to the problem you are writing about.
Find causes on both sides
- A strong report explains at least one demand-side cause and one supply-side cause, for two reasons:
- Most real issues have both.
- Excellence requires comparing causes, and you cannot compare one cause with itself.
| Side | Typical causes |
|---|---|
| Demand | Population growth, migration, rising incomes, changing preferences, the price of substitutes, expectations |
| Supply | Production costs, regulation, technology, time to build or train, number of producers, natural events |
Underlying and immediate causes
- An immediate cause is what happened recently — a cost rise, a surge in arrivals.
- An underlying cause is the structural condition that made the issue severe — usually inelastic supply.
- Naming both, and saying which is which, is a Merit-level move.
"The immediate cause was the rise in demand from population growth. But the underlying cause is that supply is highly inelastic: dwellings take years to consent and build, so the market could not respond with extra quantity and had to respond with price."
Using evidence
- Every cause needs evidence that it happened.
- Use real, referenced New Zealand data: Stats NZ, MBIE, council reports.
- Quote the figure and its source: "Stats NZ recorded the region's population rising X% between [year] and [year]."
Worked ExampleTwo causes, one model, both sides
⚠️ Illustrative issue and invented figures.
The price of electricity to households in a New Zealand region has risen sharply over three years. Over the same period, an unusually dry sequence of years reduced hydro lake levels, and the region's population and the number of electric vehicles both grew.
Explain the causes using an economic model.
Step 1 — Define the market
- The good: electricity supplied to households in this region.
- Buyers: households.
- Sellers: electricity generators and retailers.
- Price: cents per kilowatt-hour — the vertical axis.
- Quantity: kilowatt-hours consumed — the horizontal axis.
Step 2 — Cause 1 (supply side): reduced hydro generation
The cause. New Zealand generates a large share of its electricity from hydro. A dry sequence of years means lower lake levels, so less water is available to generate with. Generators must substitute toward more expensive sources — gas, coal or imported fuel — which raises the cost of production.
Which curve, and why. This changes what sellers can offer and what it costs them to offer it. It is a supply change.
The shift. Generators are willing to supply less at every price, so supply shifts left, from S to S1.
The new equilibrium. S1 cuts the unchanged demand curve higher up and further left: the price rises from Pe to Pe1 and the quantity falls from Qe to Qe1.
Step 3 — Cause 2 (demand side): population and electric vehicles
The cause. More people in the region means more households using electricity. More electric vehicles means each household that owns one consumes substantially more, because charging adds a large new load.
Which curve, and why. This changes how much buyers want at every price. It is a demand change.
The shift. Demand shifts right, from D to D1.
The new equilibrium. D1 cuts the supply curve higher up and further right: the price rises again and the quantity rises.
Step 4 — Put both together
Both causes push the price up, so their effects on price reinforce each other and the total price rise is larger than either alone.
They push quantity in opposite directions — the supply fall reduces it, the demand rise increases it — so the net change in quantity is ambiguous and depends on which shift is larger.
Step 5 — Name the underlying cause
The immediate causes are the dry years and the demand growth.
The underlying cause is that electricity supply is highly inelastic in the short run. New generation capacity — a wind farm, a geothermal station, transmission upgrades — takes years to consent and build. So when either curve moves, the market cannot respond with much extra quantity, and almost all the adjustment falls on price.
That is why the price rise was sharp rather than gradual.