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?

Use the law to increase competition.

Do nothing at all.

Turn the company into a public enterprise.

Regulate the pricing behavior.

Explanation / Answer

When the government views the electricity as a public good, then it would be better to TURN THE COMPANY INTO PUBLIC ENTERPRISE. This is so because, public goods are well served by the public enterprises rather than the private ones as the private enterpirses are profit seeking and they would not want to consider the efficiency of the entire economy. So it is a better option to turn the natural monopoly into a public enterprise.

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