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Consumer welfare effects of increased food and energy prices

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  • Kuo S. Huang
  • Sophia Wu Huang

Abstract

In this study, the authors evaluated how much price changes in food and energy -- two basic living expenditures competing for consumers’ budgets -- would affect consumer welfare. We first estimated a US complete demand system to quantify the interdependent demand relationships among 11 categories of consumption expenditures. Among the estimates, the own price elasticities of both food and energy are relatively inelastic, a finding that explains the dynamics of the recent soaring food and energy prices. The estimated demand elasticities were then incorporated into the measurement of Hicksian compensating variation to analyse the consumer welfare effects of price changes in food and energy. The results indicated that an increase in food and energy prices would increase compensated expenditures or incur a substantial consumer welfare loss, creating an especially heavy burden for low income households.

Suggested Citation

  • Kuo S. Huang & Sophia Wu Huang, 2012. "Consumer welfare effects of increased food and energy prices," Applied Economics, Taylor & Francis Journals, vol. 44(19), pages 2527-2536, July.
    • Handle: RePEc:taf:applec:44:y:2012:i:19:p:2527-2536
    DOI: 10.1080/00036846.2011.566182
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    References listed on IDEAS

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    1. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, November.
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    Cited by:

    1. Tarek Atalla & Simona Bigerna & Carlo Andrea Bollino, 2018. "Energy demand elasticities and weather worldwide," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 35(1), pages 207-237, April.
    2. Huang, Kuo S., 2013. "Consumer Welfare Effects of Quantity Changes in Demand," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 45(2), pages 217-227, May.
    3. Simona Bigerna and Carlo Andrea Bollino, 2014. "Electricity Demand in Wholesale Italian Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    4. Richard Ochmann, 2013. "Asset demand in the financial AIDS portfolio model -- evidence from a major tax reform," Applied Financial Economics, Taylor & Francis Journals, vol. 23(8), pages 649-670, April.
    5. Simona Bigerna and Carlo Andrea Bollino, 2015. "A System Of Hourly Demand in the Italian Electricity Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    6. Shamaila Aziz & Muhammad Rizwan Yaseen & Sofia Anwar, 2016. "Impact of Rising Energy Prices on Consumer’s Welfare: A Case Study of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 55(4), pages 605-618.
    7. Muhammad Atta-ul-Islam Abrar & Muhsin Ali & Uzma Bashir & Karim Khan, 2019. "Energy Pricing Policies and Consumers’ Welfare: Evidence from Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 24(1), pages 1-28, Jan-June.
    8. Bekithemba Qeqe & Forget Kapingura & Bahle Mgxekwa, 2022. "The Relationship between Electricity Prices and Household Welfare in South Africa," Energies, MDPI, vol. 15(20), pages 1-15, October.
    9. Simona Bigerna & Carlo Andrea BOLLINO, 2013. "Hourly Electricity Demand in Italian Market," Quaderni del Dipartimento di Economia, Finanza e Statistica 121/2013, Università di Perugia, Dipartimento Economia.
    10. Wang, Lijun & Zha, Donglan & O’Mahony, Tadhg & Zhou, Dequn, 2023. "Energy efficiency lags and welfare boons: Understanding the rebound and welfare effects through China's urban households," Renewable and Sustainable Energy Reviews, Elsevier, vol. 188(C).
    11. Valadkhani, Abbas & Nguyen, Jeremy & Smyth, Russell, 2018. "Consumer electricity and gas prices across Australian capital cities: Structural breaks, effects of policy reforms and interstate differences," Energy Economics, Elsevier, vol. 72(C), pages 365-375.

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