Suppose that in 2013 PECO generated 100 billion kilo-watt-hours (kwh) of electri

Question

Suppose that in 2013 PECO generated 100 billion kilo-watt-hours (kwh) of electricity that it provided to its customers at a charge of $.08 per kwh. Suppose that as a result of excessive earnings, the state regulatory commission ordered PECO to reduce its rates from $.08 per kwh to $.07 per kwh. Had the decrease been in effect in 2013, the state commission’s economic consultant believed the quantity demanded would have been 103 billion kwh of electricity, providing an increase in consumer surplus of _____. What would have been the increase in consumer surplus? (quantify the change in consumer surplus using the same approach used in the slides to determine Lisa’s increase in her consumer surplus.)

Explanation / Answer

Increase in Consumer Surplus=(103-100)*(0.08-0.07)

=3*0.01

=0.03

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