Question

Important Information to answer the question:

Scale Solar Power Energy

The average price of a 4KW solar panel system is approximately $4500 in Victoria. The Victorian Government has introduced the “Solar Homes Program” which provides eligible households with a government rebate of approximately $2300 to install a home solar system. This rebate is paid to the installer of the solar system. Households with solar panels can, in addition, receive a feed-in rebate (or cash return) of approximately 12 cents per kilowatt hour for any unused solar energy which is returned to the state electricity grid or supply.

Q1: Use the above information to:

1. Discuss the market failure evident in this industry. Your answer should include a discussion of the most significant economic concepts relating to this market failure. Concepts that should be included but not limited to are: allocation of resources, type of externalities, corrective measures by the government, how market failure arises.

Answer 1