Exhibit 17.1

-Refer to Exhibit 17.1,which shows a market for electricity.If technology is fixed,the discrepancy between the market output and the efficient level of output is eliminated by _____
A)subsidizing production by $0.05 per kilowatt hour.
B)imposing a tax of $0.05 per kilowatt hour on the utility.
C)using a quota system to restrict production to 75 million kilowatt hours.
D)subsidizing production of the good by $0.10 kilowatt hours.
E)letting the utility operate freely.

Question

Exhibit 17.1
 
-Refer to Exhibit 17.1,which shows a market for electricity.If technology is fixed,the discrepancy between the market output and the efficient level of output is eliminated by _____
A)subsidizing production by $0.05 per kilowatt hour. 
B)imposing a tax of $0.05 per kilowatt hour on the utility. 
C)using a quota system to restrict production to 75 million kilowatt hours. 
D)subsidizing production of the good by $0.10 kilowatt hours. 
E)letting the utility operate freely.

Quizplus · Accepted Answer

Imposing a tax of $0.05 per kilowatt hour on the utility will increase the price of electricity, leading to a decrease in quantity demanded, and therefore move the market output closer to the efficient level of output. Subsidizing production, even though it may increase the quantity supplied, will not eliminate the discrepancy between market output and the efficient level of output. Using a quota system will lead to inefficient allocation of resources, leading to deadweight loss. Allowing the utility to operate freely will also not eliminate the discrepancy between market output and the efficient level of output.

Exhibit 17.1 -Refer to Exhibit 17.1,which Shows a Market for Electricity.If Technology