The paper 'Industry Policy in Two Countries' is a great example of a Macro and Microeconomics Case Study. To get an understanding of the policy concerns that come up in energy pricing, one must have a sense of the institutional settings in which policies are created, discussed, and put into practice. The consumers’ demands for electricity and natural gas do have a lot of impact on the rate at which we make use of exhaustible assets, such as oil, which is used to fuel power plants, and wilderness areas with rivers, that are in the construction of new sources of hydroelectric power (Martin, 2007).
They influence our supposed requirements for the use of contentious technologies, such as nuclear producing plants. Energy needs are imperative due to their primary uses: their use for basic heating and cooling influence our health and our comfort everywhere. This includes our place of work, our places of leisure or at work, and their uses in firms do have an influence on the cost and composition of goods and services created in the economy and thus our overall economic welfare.
If the public interest is to be served, it is significant that our energy policies be as logical as possible (Stern, 2006). In this paper, I intend to deal with power as the utility. Energy Policies in the USA Energy policies in the United States practically work under one of two types of institutional understanding: i.e. a publicly owned project that is controlled by the public or a privately owned company in which the retail rates are controlled by a public utility commission. However, in whichever case, the public quarter has major tasks for the setting of utility prices.
As a result, there is a justification. The main explanation behind these exclusive institutional arrangements that depict energy provision is that the technical features of the energy distribution system make it a natural monopoly by itself (Willig, 2009). However one may try to argue that there is no need at all to have many suppliers supplying similar commodities to the same place, in case there is merely one private supplier, who is entirely profit-driven, to serve consumers in a certain region, with neither a certain parameter, control by the public segment nor competition from other suppliers this without a doubt would lead to something dangerous.
Either, there would be monopolistic price-fixing or service of poor value. One would also not rule out the possibility of insufficient quantity. Just as the water and the local telephone quarters have been historically controlled or run by the public, so is the energy quarter. As a result, there arose a principle regarding price recommendation. The principle reads as; “ prices should be based on marginal opportunity costs” .
In this case, the opportunity cost refers to the cost of the inputs that are used to offer a service in their best substitute purposes. If a price is put the same as the marginal opportunity cost of offering a service, then, in effect, every likely customer is encouraged to reflect on whether the benefits of extra consumption are greater or less than the costs in regard to the foregone benefits from the best optional use. In fact, if all consumers identify this and act in response in a well-informed manner, they will only use an amount for which the benefits outweigh the costs.
Consequently, there will be the provision of resources to their most greatly appreciated uses. This allotment is called efficient (Willig, 2009).
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