Read the Following Scenario and Answer the Questions Below

question 17

Multiple Choice

Read the following scenario and answer the questions below.
In Johannesburg, South Africa, the South West Township (Soweto) was one of several areas established early in the last century for blacks to live away from the white ruling minority. On the hills surrounding Soweto, the company that provides South Africa's electricity, Eskom, built a large, coal-burning, electricity-generating plant. The electricity was for white areas of Johannesburg, miles away from the plant. The residents of Soweto had no electrical connections.
-One of the promises made by the government in 1994 was "free electricity." Since 2003 the government has provided a small amount of electricity free to each household. Beyond that, a household must pay for the electricity that it uses. Many people would prefer a flat-rate pricing system, where each household throughout greater Johannesburg would pay the same rate each month. This would mean that ____________

• A)wealthy households would end up paying much more and have less electricity than they do now
• B)Eskom, the electric company, would probably make huge profits in Soweto
• C)all households in Johannesburg would be able to have all the electricity that they need
• D)with less incentive to keep electric usage low, environmental issues related to the generation of electricity would worsen
• E)there would not be enough electricity left to provide service to poor households

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Definitions:

Equilibrium

A condition in markets where supply equals demand, and there is no external pressure for change.

Shortage

The insufficiency of a good or service that occurs when the quantity demanded exceeds the quantity supplied; shortages occur when the price is below the equilibrium price.

Price Elasticity of Demand

The rate at which demand for a product responds to its price being altered.

Short Run

The period in economic theory during which at least one factor of production is considered fixed.