Jevons paradox

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In economics, the Jevons Paradox is an observation made by William Stanley Jevons who stated that as technological improvements increase the efficiency with which a resource is used, total consumption of that resource may increase, rather than decrease. It is historically called the Jevons Paradox since it ran counter to Jevons's intuition, but it is well understood by modern economic theory which shows that improved resource efficiency may trigger a change in the overall consumption of that resource. The direction of that change depends on other economic variables.

[edit] Explanation

Improved technology causes a shift in the supply curve resulting in an increased demand for a good or service (e.g. energy)

One way to understand this is to observe that an increase in the efficiency with which a resource (e.g., fuel) is used is effectively equivalent to a decrease in the price of what the use of that resource achieves (e.g., work). Generally speaking, a decrease in price of a good or service will be associated with an increase in demand (see price elasticity of demand). Thus with a lower price for work, more work will be "purchased". This increase in demand for the results of using the resource may, or may not, be large enough to offset the original efficiency gain. In the simplest case, if the cost of fuel remains constant, but the efficiency of its conversion into work is doubled, the effective price of work is halved and so more work will be purchased. If the amount of extra work purchased more than doubles, in this case, then the demand for fuel would actually increase, not decrease. A full analysis would have to take into account the fact that a change in the demand for fuel would also have an effect on the price of fuel, and therefore also on the effective price of work.

In his 1865 book The Coal Question, Jevons observed that England's consumption of coal soared after James Watt introduced his coal-fired steam engine, which greatly improved the efficiency of Thomas Newcomen's earlier design. Watt's innovations made coal a more cost effective power source, leading to increased use of his steam engine in a wide range of industries. This in turn made total coal consumption rise, even as the amount of coal required for any particular application fell.

Two points that need to be addressed: Jevons Paradox is sometimes referenced in the arguments on Peak oil to show why conservation of oil will not slow the arrival or the effects of peak oil. This is seen as a reason to not increase efficiency (if resource x is not used here, it will simply be used elsewhere). While it is true increased efficiency may not reduce demand, this does not take into account other benefits the resource could generate, eg. a more efficient steam engine meant many more people could travel and goods could be shipped in cheaply. Secondly, in the context of peak oil, that will be a diminishing resource causing prices to rise despite increased efficiencies.

This paradox has also been called waste homeostasis^[1]