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Typical consumer's monthly demand for kilowatt hours (kwh) of electricity is given by D(p) = 560

Economics Apr 20, 2021

Typical consumer's monthly demand for kilowatt hours (kwh) of electricity is given by D(p) = 560.00 4100.00p. Due to advances in renewable energy that have reduced barriers to entry, the supply of electricity can be considered as a perfectly competitive market, with a horizontal supply curve at price $0.08 per kwh. 

Part 1

What is the quantity consumed by a typical consumer in equilibrium?

Suppose that Congress wants to promote renewable energy and thus proposes a subsidy to consumers of $0.02 per kwh

What is the equilibrium quantity with the subsidy? 

Part 2

What percentage of the gain from the subsidy goes to sellers?

What is the deadweight loss from the subsidy?

Expert Solution

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