A city has imposed a binding ceiling price on electricity. Solar electricity technology (on the roof of all houses paid for by the government) then reduces the demand of household electricity from external suppliers such that there is no shortage or surplus of electricity in the city.

a/ Draw a set of supply and demand curves to show electricity supply and demand curves prior to the introduction of technology. Then draw a PPC to show what has happened with the introduction of solar electricity technology (on the roof of all houses). Explain what you have drawn in words. (5 marks)

b/ The electricity technology (on the roof of all houses) lowers the cost of electricity for each house. Evaluate the statement: each household benefits equally. Explain your working and answer in words. (4 marks)

c/ Justify why the rational expectation of increased future demand in electricity does not cause the above supply and demand curves to change. Explain your working and answer in words. (3 marks)

d/ A neighboring city looks identical in every way (except each house in the neighboring city requires only half the electricity and only of the water is produced for use compared with the city in the above questions - which sacrifices 1 unit of water for 1 unit of electricity). Use comparative advantage to determine which city will supply water and which will supply electricity. Estimate the price range of electricity in terms of water. Explain your working and answer in words. (6 marks)

e/ Evaluate the statement that one city should provide all the electricity for both cities, while the other provides all the water. Explain your working and answer in words. (3 marks)