Question
A small, open economy is a price-taker in the world market for electricity. It produces domestically 4 billion units of electricity from renewables and it
A small, open economy is a price-taker in the world market for electricity. It produces domestically 4 billion units of electricity from renewables and it imports another 3 billion units annually. The world price of electricity is $70per unit. Analysts assume linear demand and supply curves and estimate the price elasticity of domestic supply to be 0.3 and the price elasticity of domestic demand to be -0.2 at the current 'free trade' equilibrium.
The marginal excess burden of taxation in the country is estimated to be 0.2. Assuming that 18% of the increase in producer surplus is collected by the government as tax revenue and also that the net increases in government revenues are used to reduce domestic payroll taxes, recalculate the social net benefits.
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