|
Why do state governments prevent
competition in the distribution of electricity? In northern
Illinois only ComEd can run electricity wires from house to
house.
- ANSWER: The
distribution of electricity is a natural monopoly.
It is productively more efficient to have only one
company running wires from house to house. With fewer
wires we can get the same amount of elctricity. So, the
government only gives a license to one company to
distribute electricity because it saves resources
compared to having several companies distribute
electricity in the same neighborhood.
Once the government creates a
monopoly like ComEd, why will they then regulate the price
of electricity? In Illinois the state run Illinois Commerce
Commission sets the price of electricity.
- ANSWER: In this lesson
we will learn that monopolies are allocatively
inefficient. They will charge a high price and sell
less to maximize profits. This is bad for society so the
goverment regulates the price.
|
