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

Authors

  • Thomas M. Fullerton Department of Economics & Finance University of Texas at El Paso
  • Ileana M. Resendez Heifer International Little Rock, Arkansas
  • Adam G. Walke Department of Economics & Finance University of Texas at El Paso

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.

Keywords: Residential Electricity Consumption; Regional Economics; Business Economics

JEL Classifications: M21; Q4; R15 

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Author Biographies

Thomas M. Fullerton, Department of Economics & Finance University of Texas at El Paso

Tom Fullerton is a Professor of Economics in the College of Business Administration at the University of Texas at El Paso where he also holds the Chair for the Study of Trade in the Americas.  Dr. Fullerton teaches graduate and undergraduate courses in econometrics, managerial economics, urban economics, and border economics.  Fullerton holds degrees from UTEP, Iowa State University, University of Pennsylvania, and University of Florida.

Ileana M. Resendez, Heifer International Little Rock, Arkansas

Ileana resendez is Monitoring and Evaluation Manager at Heifer International.  She holds an MS in Economics from the University of Texas at El Paso.  She completed her undergraduate work at Monterrey Institute of Technology in Mexico.

Adam G. Walke, Department of Economics & Finance University of Texas at El Paso

Adam Walke is a Research Associate Economist with Border Region Modeling Project at the University of Texas at El Paso.  His research has been published on numerous topics in journals such as Applied Economics, Energy Economics, Annals of Regional Science, Social Science Journal, Economic Development Quarterly, Applied Economics Letters, and Canadian Water Resources Journal.

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Published

2015-10-14

How to Cite

Fullerton, T. M., Resendez, I. M., & Walke, A. G. (2015). Upward Sloping Demand for a Normal Good? Residential Electricity in Arkansas. International Journal of Energy Economics and Policy, 5(4), 1065–1072. Retrieved from https://econjournals.com/index.php/ijeep/article/view/1442

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