On Hot Summer Days, Electricity-Generating Capacity Is Sometimes Stretched to the Limit

question 130

Multiple Choice

On hot summer days, electricity-generating capacity is sometimes stretched to the limit. At these times, electric companies may ask people to voluntarily cut back on their use of electricity. An economist would suggest that

• A)every electric customer has an incentive to prevent the system from overloading, so this voluntary approach is the most efficient.
• B)it would be more efficient if the electric company raised its rates for electricity at peak times.
• C)it would be more efficient to have a lottery to decide who had to cut back their use of electricity at peak times.
• D)it would be more efficient to force everyone to cut their usage of electricity by the same amount.

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Definitions:

Equivalent Interest Rate

An interest rate that, when considering compounding and other factors, is effectively equal to a comparative rate.

Missing Interest Rate

The interest rate that is not specified or needs to be determined in a financial equation or scenario.

Equivalent Interest Rate

A rate that reflects the actual annual cost of a loan or the earnings on an investment, taking into account the effect of compounding.

False Consensus Effect

A psychological bias where individuals believe their own viewpoints, actions, and behaviors are more common in the general population than they actually are.