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February 16th, 2017 ENERGY ECONOMICS M.Sc. in Energy Engineering Duration: 2 hours and 30 minutes During the test students are not allowed to use class notes or textbooks or to leave the classroom Mark the exam folder with your Name, Last Name and Politecnico di Milano Id. Number At the end of the test hand over only the exam folder Name Last Name Id. Number Instructions and grading system Read the questions carefully and provide answers to all the points raised in each question. It is important to use a correct and appropriate terminology for all economic and technical terms. Remember to define all variables and parameters used in your answers. A full score will be awarded only if the answer is correct and complete. A partial score will be awarded only if the partial response, albeit incomplete, does not contain any errors. 2 ⇒ Question 1 (2 points) (1a) Provide a definition of price elasticity of demand (in words and formally). (1b) For a linear demand function, graphically represent the demand curve and its price elasticity. 3 ⇒ Question 2 (2 points) (2a) Provide two arguments for imposing price regulation in industries where firms have natural monopoly characteristics. 4 ⇒ Question 3 (2 points) The Italian regulator has recently introduced changes in structure of the electricity distribution tariff for households. These changes are illustrated in the graph below (Euro vs. kWh consumed in a year). (3a) Discuss the old (2015) and new (2017) tariff in light of their theoretical reference. 5 ⇒ Question 4 (2 points) Consider the case of a country were the transmission network needs additional capacity. As a regulator, what type of incentive mechanisms would you adopt to reach this goal? Motivate your answer. ⇒ Question 5 (8 points) Consider a zonal market structured as…