Publication: A Primer on Consumer Surplus and Demand : Common Questions and Answers
Loading...
Published
2006-05
ISSN
Date
2014-04-22
Author(s)
Editor(s)
Abstract
Measuring consumer's surplus is an increasingly popular approach to quantifying the monetary benefits of energy projects at the World Bank. This paper provides a brief primer on the concept and addresses some concerns and criticisms for this method. The contents include: consumer demand - this paper assumes that the benefit measured by consumer's surplus is a satisfactory measure of the benefit of policy that brings about lower energy prices and considers key challenges in this approach; estimating the demand curve; are two points adequate for estimating the demand curve - a large gain in consumer's surplus is an expected outcome of the large fall in energy costs due to electrification; whose demand curve is it anyway; does willingness-to-pay overestimate ability-to-pay; why is consumer's surplus so large; aren't the estimates affected by subsidies and taxation; and why not simply ask consumers about their benefits from electrification.
Link to Data Set
Citation
“Peskin, Henry M.. 2006. A Primer on Consumer Surplus and Demand : Common Questions and Answers. Knowledge Exchange series;no. 5. © http://hdl.handle.net/10986/17960 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Measuring Welfare Gains from Better Quality Infrastructure(World Bank, Washington, DC, 2007-04)Projects and reforms targeting infrastructure services can affect consumer welfare through changes in the price, coverage, or quality of the services provided. The benefits of improved service quality-while significant-are often overlooked because they are difficult to quantify. This paper reviews methods of evaluating the welfare implications of changes in the quality of infrastructure services within the broader theoretical perspective of welfare measurement. The study outlines the theoretical assumptions and data requirements involved, illustrating each method with examples that highlight common methodological features and differences. The paper also presents the theoretical underpinnings and potential applications of a new approach to analyzing the effects of interruptions in the supply of infrastructure services on household welfare.Publication A New Slant on Slopes : Measuring the Benefits of Increased Electricity Access in Developing Countries(World Bank, 2011-02-01)The objective of this paper is to shed some light on the benefits of improved access to electricity supply, specifically the benefits referred to as, 'consumer's surplus', which is the difference between what customers are willing to pay for the utilities associated with electricity access and the price that they actually pay. The paper leads to several important policy messages for the preparation of investments aiming to increase energy access in developing countries: consumer surplus as the measure for estimating benefits of enlarged access by households to public electricity supply needs to be used with caution; make sure that benefits of increased access to electricity are measured both in terms of gains in consumer surplus and gains in real income from electrification; plan electricity access expansion taking into account that reinforced electricity access may increase consumption of electricity modestly; plan electrification along with accompanying measures to ease access to electricity consuming appliances; and strengthen public data on energy consumption. The paper leads to specific conclusions relative to: the methodology to calculate benefits of increased electricity access; demand patterns for lighting purposes; demand patterns for entertainment and information purposes, and (4) other uses of energy.Publication The Benefits of Solar Home Systems : An Analysis from Bangladesh(World Bank, Washington, DC, 2013-12)The Government of Bangladesh, with help from the World Bank and other donors, has provided aid to a local agency called Infrastructure Development Company Limited and its partner organizations to devise a credit scheme for marketing solar home system units and making these an affordable alternative to grid electricity for poor people in remote areas. This paper uses household survey data to examine the financing scheme behind the dissemination of these solar home systems, in particular the role of the subsidy; the factors that determine the adoption of the systems in rural Bangladesh; and the welfare impacts of such adoption. The paper finds that while the subsidy has been declining over time, the demand for solar home systems has seen phenomenal growth, mostly because of technological developments that have made the systems increasingly more affordable. Households with better physical and educational endowments are more likely to adopt solar home systems than poor households. The price of the system matters in household decision making -- a 10 percent decline in the price of the system increases the overall demand for a solar panel by 2 percent. As for the benefits, adoption of a solar home system improves children s evening study time, lowers kerosene consumption, and provides health benefits for household members, in particular for women. It is also found to increase women's decision-making ability in certain household affairs. Finally, it is found to increase household consumption expenditure, although at a small scale.Publication Primer on Demand-Side Management : With an Emphasis on Price-Responsive Programs(Washington, DC, 2005-02)The practice of Demand-Side Management (DSM) has evolved over the past three decades in response to lessons learned from implementation in different global settings, and also in response to the changing needs of restructured power markets. The most notable change that is occurring today is the inclusion of programs that emphasize price responsiveness in the DSM portfolio. Traditionally, DSM programs were confined to energy efficiency and conservation programs with reliability-driven load management programs being used occasionally to manage emergency situations. Electric prices were taken as a given when designing such programs, hampering the eventual success of all such efforts. This Primer has been written to introduce the new concepts of price-responsive DSM that are currently being investigated in a variety of different market settings. It highlights different criteria and taxonomies for classification and evaluation of DSM programs and recommends programs that will likely provide a better fit with the objectives, expected needs and outcomes of DSM initiatives in developing and transition countries. As defined in this primer, such initiatives include both load shifting programs (that either clip peak loads or shift energy used in the peak period to off-peak periods) and efficiency programs (that reduce the total amount of energy). The purpose of the primer is to provide successful examples of price-responsive DSM programs from the developed world and by discussing their workings, show that they can be also be applied to the developing world. Of course, before price-responsive programs can be implemented in the developing world, certain pre-requisites pertaining to metering and billing practices would have to be implemented. These are discussed in the report.Publication Restoring Balance : Bangladesh's Rural Energy Realities(World Bank, Washington, DC, 2009-03)This study, the first to concentrate on Bangladesh's energy systems and their effects on the lives of rural people, drew on these background studies, as well as other World Bank-financed research on IAP and rural infrastructure, to present a rural energy strategy for the country. The study's broad aim was to identify ways to improve the living standard in rural Bangladesh through better and more efficient use of energy, while creating an environment conducive to growth and poverty reduction. For any developing country, the crux of a rural energy strategy is to have more and better choices for meeting rural demand for energy through market mechanisms and sound policy. This goes hand in hand with the development of competent implementing institutions, which are critical to the process. Also important are new supply- and demand side technologies that can be used to raise rural people's welfare and improve productivity to increase growth prospects. Accordingly, the rural energy strategy advocated by this study aims to satisfy the types of demand that increase household welfare and raise rural growth prospects as energy becomes a direct input into the production process.
Users also downloaded
Showing related downloaded files
Publication Environmental, Social, and Governance Investing(World Bank, Washington, DC, 2021-03-01)This primer responds to central banks’ growing demand for knowledge on social, governance, and environmental considerations (ESG) in the investment process. This area has gained traction in the last two decades. More recently, central banks’ interest in ESG has increased, but much of the information available is aimed at investors with different investment objectives and broadly diversified portfolios. The authors fill that information gap by reviewing the definitions of ESG and the main ESG investment approaches, including their applicability to asset classes. The authors then examine how foreign reserve managers can apply ESG investing in their reserve management operations. The authors find limited scope for implementing ESG strategies in reserve management, given that most central banks still invest primarily in sovereign bonds of major economies. Yet, the authors also identify opportunities and critical considerations for central banks interested in implementing ESG investing in their reserve management operations.Publication The Sub Prime Crisis : Implications for Emerging Markets(World Bank, Washington, DC, 2008-09)This paper discusses some of the key characteristics of the U.S. subprime mortgage boom and bust, contrasts them with characteristics of emerging mortgage markets, and makes recommendations for emerging market policy makers. The crisis has raised questions in the minds of many as to the wisdom of extending mortgage lending to low and moderate income households. It is important to note, however, that prior to the growth of subprime lending in the 1990s, U.S. mortgage markets already reached low and moderate-income households without taking large risks or suffering large losses. In contrast, in most emerging markets, mortgage finance is a luxury good, restricted to upper income households. As policy makers in emerging market seek to move lenders down market, they should adopt policies that include a variety of financing methods and should allow for rental or purchase as a function of the financial capacity of the household. Securitization remains a useful tool when developed in the context of well-aligned incentives and oversight. It is possible to extend mortgage lending down market without repeating the mistakes of the subprime boom and bust.Publication Empowerment in Practice : From Analysis to Implementation(Washington, DC: World Bank, 2006)This book represents an effort to present an easily accessible framework to readers, especially those for whom empowerment remains a puzzling development concern, conceptually and in application. The book is divided into two parts. Part 1 explains how the empowerment framework can be used for understanding, measuring, monitoring, and operationalizing empowerment policy and practice. Part 2 presents summaries of each of the five country studies, using them to discuss how the empowerment framework can be applied in very different country and sector contexts and what lessons can be learned from these test cases. While this book can offer only a limited empirical basis for the positive association between empowerment and development outcomes, it does add to the body of work supporting the existence of such a relationship. Perhaps more importantly, it also provides a framework for future research to test the association and to prioritize practical interventions seeking to empower individuals and groups.Publication Global Economic Prospects, January 2025(Washington, DC: World Bank, 2025-01-16)Global growth is expected to hold steady at 2.7 percent in 2025-26. However, the global economy appears to be settling at a low growth rate that will be insufficient to foster sustained economic development—with the possibility of further headwinds from heightened policy uncertainty and adverse trade policy shifts, geopolitical tensions, persistent inflation, and climate-related natural disasters. Against this backdrop, emerging market and developing economies are set to enter the second quarter of the twenty-first century with per capita incomes on a trajectory that implies substantially slower catch-up toward advanced-economy living standards than they previously experienced. Without course corrections, most low-income countries are unlikely to graduate to middle-income status by the middle of the century. Policy action at both global and national levels is needed to foster a more favorable external environment, enhance macroeconomic stability, reduce structural constraints, address the effects of climate change, and thus accelerate long-term growth and development.Publication Natural Disasters, Poverty and Inequality(Taylor and Francis, 2021-10-28)Conventional risk assessments underestimate the human and macroeconomic costs of disasters, leading to inefficient risk management strategies. This happens because conventional assessments focus on asset losses, neglecting important relationships between vulnerability and development. When affected by a hazard, poor households take longer to recover from disasters and are more likely to face long-term consequences. Forced to manage trade-offs between essential consumption and reconstruction, these households are more likely to face persistent health or education costs. This chapter proposes a review of existing research into the natural disaster-poverty-inequality nexus and the various metrics that can be used to measure disaster impacts, such as recovery times, economic (income or consumption) losses, poverty incidence, inequality, and welfare or well-being losses. Each of these metrics provides a different perspective on disaster costs and suggest different spatial and sectoral priorities for action. Focusing on the concepts of well-being losses and socioeconomic resilience, this chapter shows how more comprehensive accounting of disaster impacts can better inform disaster risk management and climate change adaptation strategies and support their integration into development and poverty-reduction policies.