Question

1. The COVID-19 pandemic is, for all intents and purposes, causing a worldwide eco- nomic recession, with businesses shutting their doors and many people out of work. Consider the market for electricity during this crisis. Draw a diagram for each of these situations. (a) What effect does COVID-19 have on supply and demand in the market for electricity? (5%) (b) Suppose that the government considers banning electricity bills until the COVID-19 subsides. What effect might this have on the market for electricity? (5%) (c) Instead of the proposal in (b), the government consider subsidizing the market for electricity. What effect would this have on the market for electricity? (5%). (d) Is there an argument, based on externalities, for subsidizing electricity? (5%)

Answer 1

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Ille Banning electricity will will increase household consumption this will slife sucrease the demand of the electricity Quantly so a The increase in will caure demand, telo им оде и in the day demand curre toneards the right. The price will increase the quantity will creare ta

lc A puleridy will increase the supply So- Subsidy The ruberidy will lift the nepply curice to the right, The price will decrease from Po to P, The quantity will inneare from So ta al

Тиш олимли их и их роля of electricity. This will increare consumption of homehold) without any umeare un production. Том и Дракт (ох ращим шричи lost without any ucleare in production.
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