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Upward Sloping Demand for a Normal Good? Residential Electricity in Arkansas

Author

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  • Thomas M. Fullerton

    (Department of Economics & Finance, University of Texas at El Paso, El Paso, TX 79968-0543, USA,)

  • Ileana M. Resendez

    (Heifer International, 1 World Avenue, Little Rock, AR 72202, USA)

  • Adam G. Walke

    (Department of Economics & Finance, University of Texas at El Paso, El Paso, TX 79968-0543, USA)

Abstract

This study analyzes residential electricity demand in the state of Arkansas using an error-correction approach that examines both long-run and short-run dynamics. As in prior studies, results indicate that higher electricity prices reduce consumption in the long-run, but not in the short-run. With respect to variations in household income, residential electricity is treated as a normal good. The long-run income elasticity estimate is about twice as large as the short-run estimate. It is suggested that the muted short-run responses to price and income variables may reflect limited capacity to adjust the stock of electricity-consuming household devices over the short-term. More surprisingly, households are found to treat electricity as a normal good in the short-run, but have an upward sloping demand curve associated with it. The overall results suggest that increasing generating capacity in Arkansas will be feasible using the standard approach of incremental rate increases.

Suggested Citation

  • Thomas M. Fullerton & Ileana M. Resendez & Adam G. Walke, 2015. "Upward Sloping Demand for a Normal Good? Residential Electricity in Arkansas," International Journal of Energy Economics and Policy, Econjournals, vol. 5(4), pages 1065-1072.
    • Handle: RePEc:eco:journ2:2015-04-19
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    References listed on IDEAS

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    More about this item

    Keywords

    Residential Electricity Consumption; Regional Economics; Business Economics;
    All these keywords.

    JEL classification:

    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • R15 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods

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