Suppose that the government is concerned that an electric utility company is tak

Question

Suppose that the government is concerned that an electric utility company is taking advantage of consumers with unfair pricing policies. The government views electricity as a public good that is likely to be produced inefficiently by the private sector. Which of the following policy options might most effectively enable the government to achieve its objectives in this situation? Regulate the pricing behavior. Turn the company into a public enterprise. Use the law to increase competition. Do nothing at all.

Explanation / Answer

The option for the government regarding the optimal provision of electricity is to turn it into a public enterprise.

This will help the government to regulate the operations effectively and set an optimal price for optimal allocation.

Regulating the pricing behavior will not be a good option, as regulating the price will force the private supplier to reduce supply in order to continue making profits.

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