How much do residential consumers respond to the price of natural gas?


“Natural gas is popular because it burns more cleanly than coal in electricity generation and because it is mostly domestically produced—using traditional as well as recently invented frac(k)ing technologies. The frac(k)ing revolution has caused a massive drop in gas prices. This drop has led nerdy economists to ask pesky questions like: “How do consumers’ consumption of natural gas change if its price rises/drops?

Numerous policy questions require knowledge of this number to determine whether the government should pass certain types of natural gas regulation and pricing. In California, we are keenly interested in the implications of climate regulation and the value of reducing our greenhouse gas emissions. Nationally, we are interested in understanding the benefits of more or less fracking. You cannot get answers to these important questions without a good estimate of the price elasticity of natural gas demand.”

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