Consumer durables,economics of information and public policy

The economic concept of the value of the last dollar spent is used to analyse market failure associated with the energy requirements of appliances. A model is developed which focuses on the information problem concerning the energy used to derive service flows from durables. Economic perspectives based upon the model are offered as to (1) why the private sector did not correct the problem, (2) why events in the 1970s prompted public intervention, and (3) how Energy Guide labels enhance the exchange process. But can consumers use the information contained on Energy Guide labels? The results of a study of high school students in the United States suggest that many consumers with problem solving skills comparable to these students would be unable to use the labels effectively. The study also indicated that effective education materials have been developed to help consumers use the labels.