Question

2.6 Vertically integrated utilities often offer two-part tariffs to encourage their con- sumers to shift demand from on-peak load periods to off-peak periods. Consump- tion of electrical energy during on-peak and off-peak periods can be viewed as substitute products. The table below summarizes the results of experiments that the 2 Basic Concepts from Economics 45 Southern Antarctica Power and Light Company has conducted with its two-part tariff. Use these results to estimate the elasticities and cross-elasticities of the demand for electrical energy during peak and off peak period s. On-peak price π $/MWh) Off-peak price 2 (S/MWh) Average on-peak demand D, (MWh) Average off-peak demand D2 (MWh) Base case 0.08 0.06 0.05 0.06 1000 992 985 500 Experimen1 0.08 509 t 2 0.09

Answer 1