• Title/Summary/Keyword: Price elasticity of demand for inputs

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An analysis on the effects of higher power rates on supply price and power savings for Korean manufacturing sector (산업 전력요금 인상의 공급가격 및 전력수요 절감 효과 분석:국내 제조업 부문을 대상으로)

  • Lee, Myunghun
    • Environmental and Resource Economics Review
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    • v.23 no.1
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    • pp.43-65
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    • 2014
  • In this paper, we test for allocative efficiency of productive inputs including electricity and measure the divergence between the actual and optimal level of electricity for the chemical products, which is a relatively highly electricity-intensive sector in Korean manufacturing industries, by estimating a shadow cost function. Supposing cost minimization subject to market prices was achieved, we derive the price elasticities of demand for each input and simulate the impact of a 10% increase in power rate on its demand and supply price by estimating jointly a cost function with an inverse supply relation. The null hypothesis of allocative efficiency of inputs is rejected over the period 1982-2006. On average, electricity is used more than optimal level by 98% per year. The demand for electricity decreases by 11.4%, and supply price, on average, falls by 0.08%, other things being equal.

The Economic Value of Residential Electricity Consumption in Seoul

  • Yoo, Seung-Hoon;Lee, Seung-Ryul
    • Journal of Energy Engineering
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    • v.21 no.1
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    • pp.81-85
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    • 2012
  • Electricity is the basic building block of economic development, and constitutes one of the vital infra-structural inputs in socio-economic development. The demand for electricity has been increasing due to extensive urbanization, industrialization, and a rise in the standard of living, as is the case with residential electricity consumption. This paper attempts to estimate the consumer surplus and the economic value of the residential consumption of electricity in Seoul to assist in decision-making in electricity management. The estimated consumer surplus represents the value of the area under the demand curve, above the actual price that is paid for residential electricity consumption. The estimated annual consumer surplus and economic value for the year 2005 amount to 2,144.7 and 3,727.4 billion won, respectively. The estimates per kWh were 184.9 and 316.0 won, respectively, which imply that the consumer surplus and the economic value of residential electricity consumption significantly outweigh the average price of electricity in 2005 of 91.1 won per kWh.

Dynamic Analysis on Electricity Demands for the Steel Industry in Korea: Comparison between SMEs and Large Firms (우리나라 철강산업의 전력수요에 대한 동태 분석: 중소기업과 대기업 간 비교)

  • Li, Dmitriy;Bae, Jeong Hwan
    • Environmental and Resource Economics Review
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    • v.29 no.4
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    • pp.499-520
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    • 2020
  • Input ratio of electricity to other production inputs in the Korean manufacturing sector has been higher than for the other OECD countries. In addition, electricity prices in Korea has been relatively lower than the average of OECD countries. Moreover, electricity sector is responsible for most CO2 emissions in Korea as coal and natural gas account 41.9% and 26.8% of electricity production as of 2018. Therefore, it looks inevitable to raise the electricity tariff for the manufacturing sector in Korea, but there is a concern that increase in the electricity tariff might affect small and medium enterprises (SMEs) more than large firms. This study estimates electricity demand's price and output elasticities for large firms and SMEs in steel industry by employing a time varying parameter model (Kalman filter). The analysis shows that changes in output levels regardless of firms' size affect electricity demands more significantly than do changes in electricity prices. Second, large firms have higher variances for both price and output elasticities of electricity demand. Third, large firms have higher price elasticity but lower output elasticity of electricity demand relative to SMEs. Policy implications are suggested in association with how to reduce electricity demands in the energy-intensive industry.