Posts Tagged elasticity of demand

The Elasticity of Electricity Demand

In an attempt to rebut economist Ed Dolan’s support of a carbon tax, I came across a RAND Study done for the Sacramento Municipal Utility District, which estimasted the short term elasticity of residential electricity demand at -0.2 and the long run elasticity of demand a -0.32.

This is a very inelastic market ( |elasticity| << 1 ), and so supports my argument that regulation is likely to be the most economically efficient approach to reducing residential electricity use.

Dolan compiled some numbers that put long run elasticity of gasoline demand at around 0.5, which also implies that regulation has a role to play in reducing gas usage, although it’s high enough that carbon taxes are also likely to be somewhat effective; a combination seems the best approach to me.

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