The National electricity supplier in South Africa (Eskom) has applied for a 16% price hike over five years to the National Energy Regulator of South Africa (NERSA) which will see them not requesting for any increase in electricity tariffs up to 2018.

2.1 Use the AD-AS analysis to evaluate the type of inflation and its resulting effect on production, income and employment since the above application by Eskom was approved by NERSA. What course of actions, do you think NERSA should take based on the effects discussed above?