Question

Per unit price of electricity is higher in the Commercial sector as compared to the Domestic sector. Identify and briefly describe this phenomenon. Name the market in which it is applicable.

Answer 1

The per-unit price of electricity is higher in the commercial sector than in the domestic sector due to price discrimination, which charges various rates for the same product depending on customer groupings, demand elasticity and willingness to pay. The business sector has a less elastic need for power, allowing suppliers to raise rates, whereas the household sector has a more elastic demand. The market structure is imperfectly competitive and could be characterised as monopolistic competition.