Q. Which of the following statements best describes the concept of ‘cross-subsidization’:

[A] It means one group of consumers is charged a lower price compared to another group, using the finances earned by charging higher prices from the latter group.

[B] It means subsidizing the wrong beneficiary, instead of the original one.

[C] It means subsidizing the target beneficiary through the finances collected from same beneficiaries only.

[D] It means subsidizing an industry from the disinvestment in that particular industry.

Answer: A
Notes:

Cross-subsidies in electricity tariff, therefore, can be defined as a mechanism whereby some consumer groups are charged a higher tariff as compared to the cost of supplying power to them. The additional revenue generated from them is used to tide over the revenue shortfall from other consumer groups, who are charged lesser tariff as compared to the cost of supplying power to them.

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