South-Western College Publishing - Economics  
How Many Consumers Does It Take to Screw in an Energy-Efficient Light Bulb?
Subject Consumers may move toward increasing energy efficiency.
Topics Utility and Consumer Choice; Market Failure, Regulation, and Public Choice
Key Words Demand, Efficiency, Preferences, Prices, Elasticities
News Story

Energy prices are predicted to increase significantly in 2004, resulting from a significant increase in demand. Higher prices are in turn prompting a move toward greater energy efficiency in the home and in consumers' purchases. Historically, such moves have not come easily. Fluorescent light bulbs, while significantly more efficient, are 8-10 times as expensive as regular incandescent bulbs. However, consumers expect that such costs are offset by the energy cost savings and the significantly increased life of the bulb.

Potential savings are significant. The article points out that if every household replaced its five most-frequently-used lights with fluorescent bulbs, energy savings would be equal to closing down 21 power plants—and would reduce the emission of gases that contribute to global warming. However, such a move to realize the full benefits would require the purchase of some 500 million bulbs, a level of demand that the industry is not yet prepared to meet.

Further, given that 2004 is an election year, politicians may choose to stake out positions on energy efficiency, offering rebates for purchasing energy-efficient appliances, tax credits, subsidies and the like. All of these are likely to increase consumer demand for greater energy efficiency.

(Updated January, 2004)

Questions
1.

According to the article, what is happening to the marginal cost of NOT becoming more energy efficient? Why?

2. Why are consumers so reluctant to move toward greater energy efficiency?
3. Moving toward greater energy efficiency in consumption is characterized by a classic "free rider" problem: Everyone benefits from energy savings, but no one has overwhelming individual interest to be more efficient. Why is that?
Source Barnaby J Feder, "Energy Efficiency Could Gain Favor," The New York Times, 1 December 2003.

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