Economic Structure, Aggregate Production Functions and the Demand for Energy as an Intermediate Product: A Preliminary Analysis

摘要

This study investigates the relationship between the price elasticity of demand for energy as a factor of production and differences in economic structure. A simplified model of general economic equilibrium is constructed utilizing a constant-elasticity-of-substitution production function. Using this model the price elasticity of demand for an intermediate product (energy) is determined under alternative structural assumptions (i.e., the degree to which the production process for the intermediate product directly utilizes primary factors of production). For an open economy and the case of energy, these assumptions could concern the degree to which the economy utilizes its own versus imported energy resources. For energy an intermediate product, the analysis concludes that the weaker the direct connection between the energy sector and primary factors of production, the smaller the output effect component of the underlying demand for energy compared to traditional, partial equilibrium concepts of factor demand. As a consequence, the demand for energy would tend to be less elastic as the proportion of energy imported is large. (ERA citation 04:013550)