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Edited by Joanne Evans and Lester C. Hunt
Chapter 5: Energy Demand Theory
Kenneth B. Medlock III 1 Introduction Energy is crucial to the improvement of social and economic welfare. It is necessary to continued economic activity in modern industrialized nations, and its absence would result in cessation of economic growth and diminishing standards of living. In fact, in developing nations a lack of modern energy services is a principal cause of low levels of economic and social development. Access to electricity promotes social development and improved welfare by allowing greater access to information via computer, radio and television, cleaner means of storing and preparing food, and the attainment of heating and cooling services. Over the last two centuries there has been unprecedented economic growth and radical improvements in standards of living. A major contributing factor has been the replacement of manpower with mechanical power through the development of new technologies. This has provided new opportunities and facilitated significant improvements in productivity. One example of this is the invention of the internal combustion engine and motor vehicle, which along with the consumption of crude oil products, has provided a more expedient means of transporting people and goods, thus creating growth opportunities by connecting markets and facilitating trade. The demand for energy is a derived demand inasmuch as energy’s value is determined by its ability to provide some set of desired services. In particular, when combined with energy-using capital, energy facilitates the provision of goods and services in industry and in the household. Therefore, energy consumption at the individual, household and/ or firm level...
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