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Impact of Rising Energy Prices on Consumer’s Welfare: A Case Study of Pakistan

Shamaila Aziz, Muhammad Rizwan Yaseen and Sofia Anwar
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Shamaila Aziz: MPhil Student, Department of Economics, Government College University, Faisalabad
Sofia Anwar: Professor and Chairperson, Department of Economics, Government College University, Faisalabad

The Pakistan Development Review, 2016, vol. 55, issue 4, 605-618

Abstract: This work investigated the impact of higher energy prices on consumer’s welfare for the Pakistan from 1987 to 2012. The central objective of the study is to quantify the consumer welfare through Compensating Variation (CV) after estimating the demand elasticities by applying the Linear Almost Ideal Demand System (LA/AIDS) for main energy sources. Welfare change is also measured in four scenarios (two price shocks) for Pakistan in order to analyse the impact of energy price change in different time period. Coal, gasoline and High Speed Diesel (HSD) oil are relatively less elastic, where High Octane Blended Component (HOBC), kerosene and Compressed Natural Gas (CNG) are relatively more elastic, while electricity and natural gas is unit elastic. Additionally, the results of Compensating Variation suggest that due to higher energy prices, more income compensation is required to pay for consumer in order to achieve the initial energy utility. So mixture of price controlling and income policies should be adopted for each energy source.

Keywords: Rising Energy Prices; Consumer Welfare; LA/AIDS; CV; Time Series Data (search for similar items in EconPapers)
JEL-codes: D6 Q4 (search for similar items in EconPapers)
Date: 2016
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