Estimates Of Demand Elasticities Research Articles

Structural Estimates of Supply and Demand Elasticity for Houses in Sydney

We report estimates of supply and demand elasticities for houses (i.e., non-strata properties) in three geographic locations of Sydney. In the Inner Ring of Local Government Areas (LGAs)—those closest to the Central Business District (CBD)—our estimates indicate that the supply curve for houses is perfectly inelastic. This finding allows us to condition on the stock of houses and estimate the corresponding Inner Ring demand curve using ordinary least squares. In the Middle and Outer Rings—where the supply curve for houses has positive elasticity—we use instrumental variables to estimate the demand curve for houses. For all three locations, we obtain theoretically reasonable point estimates of standard demand elasticities, although the degree of uncertainty surrounding the Outer Ring estimates is relatively large. Averaging across the three regions of Sydney, the price elasticity of demand for houses is −1.3, cross-price elasticity with units is 1.1, and income elasticity is 2.1. Based on our elasticity estimates, only in the Outer Ring are any of the direct burdens of stamp duty born by buyers (about 40 percent).

Taxing Firearms Like Alcohol or Tobacco

Abstract Despite recent calls for increased taxation of firearms, there has been little quantification of the impact that this would have on the market. Using tax receipts and recent estimates of supply and demand elasticities, this paper measures the size of the U.S. gun market at equilibrium, and the effects of current and higher tax rates. Baseline estimates indicate that market equilibrium is $14.11 billion and current taxes reduce sales by 14.5 percent. Taxing firearms at rates comparable to taxes on alcohol would cut sales to roughly three-quarters of equilibrium and increase tax revenue by 58 percent; raising gun taxes to the rate on tobacco would reduce sales to about half of the equilibrium level and double federal tax revenue.

Heteroskedastic supply and demand estimation: Analysis and testing

The Feenstra (1994) method is widely used in the international trade literature to estimate supply and demand elasticities. The method is mechanically an IV strategy, and we demonstrate that this has important implications for its application and reliability. The assumptions needed for it to yield unbiased estimates are stronger than previously understood, and in practice, estimates are subject to bias due to both weak instruments and violations of the exclusion restriction. We illustrate how these arise in context and show that standard tests identify estimates that are likely to be biased. In an application to U.S. import data, estimates of import demand and export supply elasticities are substantially lower among goods that pass standard tests relative to those that fail. We find evidence that this difference in elasticities reflects reduction of bias as well as some selection in the set of goods that tend to pass both tests.

The role of geographic market definition in analysis of grocery retailing

AbstractWe examine how estimates of household food demand elasticities and store profit margins vary with alternative geographic market extents using structural models of household store choice and retailer competition. Our consumer store choice model is novel, simultaneously accounting for the heterogeneity of store choice sets, households' travel distance to stores, and their store‐specific shopping basket prices. We estimate the models using a unique combination of datasets on grocery purchases. We find that the geographic market extent is positively associated with household demand elasticity and negatively associated with store profit margins. The maximum market extent at which changes in demand elasticities become statistically insignificant varies by retailers, ranging between 10 and 16 km. These findings are robust to alternative assumptions of store competition. Our results imply that overlooking the locality of retail competition can result in overestimating the magnitudes of household demand elasticities while underestimating store profit margins, characterizing a relatively more competitive market.

A meta‐analysis of U.S. food demand elasticities to detect the impacts of scanner data

AbstractThis paper investigates how scanner data affect demand elasticity estimates and develops methods for scientists to adapt estimated elasticities to analyses of specific policies. We conduct a meta‐analysis of U.S. demand elasticities and find evidence that scanner data generate statistically different elasticities, with more elastic demand than other data types. Own‐price elasticity estimates from household scanner quantity data appear to be more elastic than other quantity types. Household‐level estimates using retail scanner price data, as proxies for prices, tend to be more price‐elastic than other price types. These results suggest caution or adjustment when selecting elasticities for policy analysis.

Responsiveness of market equilibrium agricultural output, price and land use to shocks

AbstractWe assess the responsiveness of market equilibrium agricultural output, price and land use to shocks in agricultural demand, land yield and arable land area and the role of road infrastructure policy in offsetting them. We adapt a partial equilibrium model in the agricultural composite good and lands markets to guide the specification and estimation of a simultaneous equation model (SEM) for agricultural demand, land yield and acreage, and calculate market equilibrium responsiveness. We estimate the SEM by the generalised method of moments three‐stage least squares (GMM 3SLS) using a panel data set of the 10 biggest agricultural producer states in Brazil from 2001 to 2017. Using demand, land yield and acreage price elasticity estimates, we find that Brazil may expand equilibrium agricultural output while preserving its native vegetation land and dampening long‐term agricultural price escalation under a scenario of increasing worldwide demand for food, fibre and fuel and adverse climate shocks. Using acreage and land yield freight rate elasticity estimates, we show how shocks may be offset by road infrastructure policies that reduce freight rates to specific destination states, as they may be designed to induce less equilibrium land use for the same equilibrium output or raise equilibrium output with less equilibrium land use.

Examining Fruit Demand Elasticities In Pakistan

Abstract Research background Income and prices are important factors that determine and decide households consumption decisions and behavior. Purpose and research methodology This paper aims to examine fruits’ demand elasticities in Pakistan by using the Linear Approximate Almost Ideal Demand System (LA/AIDS). For this purpose, data from the Household Integrated Economic Survey (HIES) 2018–2019 part of Pakistan Living Standard and Measurement is used for the selected fruits. Results Marshallian, Hicksian, and expenditures elasticities were calculated through the estimated parameter from the Linear Approximate Almost Ideal demand system. The results show that all the estimated expenditure elasticities of the selected fruits for Pakistan are positive. The magnitude of expenditure elasticities for bananas, malta, apple, grapes, watermelon, plum, and almonds, is less than unity, and are thus categorized as normal food items. The estimated uncompensated own price demand elasticities for all fruits are less than unity (inelastic) for Pakistan and thus categorized as necessities. Based on the cross-price uncompensated demand elasticities eighteen fruits are reported as gross complements and three fruits are gross substitutes. Most of the fruits are categorized as neutral fruits having no cross-price effect on each other’s demand as their estimated elasticities are closer to zero. Only apples with grapes and almonds are found to be notable substitutes. As most of the price elasticities of fruits are inelastic, any change in their price would result in a massive increase in expenditure on these fruits. As a result, the government may adopt policies for the stabilization of fruit prices to meet the minimal daily food requirements of the lower segments of society. Novelty This study is an attempt to estimate demand elasticities for individual fruit as very little research is available in the study area for individual commodities.

Illicit cigarette market in Georgia: potential impacts on smoking prevalence and tax revenues

ObjectivesThis study aims to examine the impact of taxation measures implemented between 2017 and 2019 on the illicit cigarette market in Georgia and to assess the potential effects of its full elimination on smoking rates and tax revenues. Study designThis was a cross-sectional and observational study. MethodsThe study uses the gap analysis method to estimate the size of the illicit market by comparing self-reported cigarette consumption with tax-paid cigarette sales. Potential changes in cigarette consumption are calculated using estimates of price demand elasticity and the price difference between licit and illicit cigarettes. The applicable excise tax is then applied to the estimated change in licit cigarette consumption to determine the potential change in tax revenues. ResultsIn 2020, illicit cigarettes accounted for 6.4% of the market, which decreased to 0.6% in 2021. Eliminating the illicit cigarette market could potentially reduce the number of smokers by 0.5% in 2020 and 0.1% in 2021. It could also lead to a 2.8% increase in excise tax revenues in 2020 and a 0.2% increase in 2021. The study highlights a notable shift in consumer behavior since 2019 toward smoking roll-your-own (RYO) cigarettes. ConclusionsTax increases did not have a significant impact on the size of the illicit market in Georgia. The shift in consumer preference toward RYO cigarettes may explain why the illicit cigarette market did not expand after the tax hikes. However, this shift diminishes the effectiveness of taxation policies in reducing smoking rates and leads to a decline in excise tax collection.

Estimating Demand for Imported Food Categories in Iraq

Iraq is highly dependent on international markets to provide food for its residents. As imported food prices are highly dependent on crude oil prices in global markets, any shock in oil prices will have an impact on food consumption in the country. As a result, it is essential to study the demand for imported food at every time period. To the best of our knowledge as researchers, as not even a single study is available in the literature, this paper is considered the first to study the demand for imported food groups in Iraq. Therefore, the main objective of this research is to estimate demand elasticities for several imported food categories in Iraq. This study uses an Almost Ideal Demand System model to analyze the demand for imported food in Iraq from 1980-2003 and 2003-2020. Data are collected from secondary resources. The main results show that some food categories become demand inelastic after they were demand elastic in the first period. In contrast, demand for some food groups become more price sensitive in the second period after it was less price sensitive in the first period. There are also changes in some food categories after they became luxuries in the second period. The findings of this study provide valuable insights into the changing dynamics of food import demand in Iraq and have policy implications by helping the decision-makers to invest more in the local production of some food groups.
 Paper type: Research paper

How do low-income enrollees in the Affordable Care Act marketplaces respond to cost-sharing?

The Affordable Care Act requires insurers to offer cost sharing reductions (CSRs) to low-income consumers on the Marketplaces. We link 2013-2015 All-Payer Claims Data to 2004-2013 administrative hospital discharge data from Utah and exploit policy-driven differences in the actuarial value of CSR plans that are solely determined by income. This allows us to examine the effect of cost sharing on medical spending among low-income individuals. We find that enrollees facing lower levels of cost sharing have higher levels of health care spending, controlling for past health care use. We estimate demand elasticities of total health care spending among this low-income population of approximately -0.12, suggesting that demand-side price mechanisms in health insurance design work similarly for low-income and higher-income individuals. We also find that cost sharing subsidies substantially lower out-of-pocket medical care spending, showing that the CSR program is a key mechanism for making health care affordable to low-income individuals.

제조부문별 전력수요함수 및 탄력성 추정 연구

본 연구는 최근의 전력소비 환경변화에 따른 산업부문 전력 소비행태를 분석하기 위해 2009년∼2021년까지의 월별 시계열 데이터를 활용하여 우리나라의 산업별 전력수요함수와 탄력성을 산출하였다. 산업용 전체, 산업용(갑), (을)과 함께 제조부문을 13개 그룹으로 분류한 후, 단위근 검정과 공적분 검정을 시행하였고, FGLS와 ARDL모형을 활용하여 전력가격, GDP, 석유가격, 난방도일, 냉방도일의 탄력성을 산출하였다. 분석결과 선행연구 대비 가격, 소득탄력성이 낮게 나타났고, 산업부문에서는 300kW이하의 산업용(갑)이 산업용(을)보다 가격, 소득탄력성이 높게 도출되었다. 업종별로는 전력다소비업종의 가격, 소득탄력성이 저소비업종 대비 높은 결과를 보였는데, 다소비업종에서도 수요관리 및 에너지효율화를 확대하여 과거 대비 전력소비 대응성이 높아진 것으로 판단된다. 일부 업종에서는 요금규제 정책으로 인한 경제적 왜곡과 전전화(Electrification) 현상도 발생하였으며, 코로나19 시기의 분석결과는 통계적으로 유의성이 높은 결과를 나타내지는 못하였으나 산업용(갑)과 전력다소비업종의 소득탄력성이 높게 추정되었다.

Determinants of Tuition Prices in Private Universities of Mexico: A Panel Data Analysis at the State Level 2005-2019

Objective: Estimate a supply and demand model of private college education services in Mexico for the 2005-2019 period, in order to identify the factors that influenced the dynamics of their equilibrium prices.Methodology: The methodology consists of estimating such models with two- and three-stage least squares using panel data at the state level.Results: The results suggest that while the contribution of demand variables to the inflation of such prices has been positive and fairly stable, that of supply variables, even though it has been more fluctuating, it has also been larger than the contribution of the former throughout the entireperiod.Limitations and implications: It bounds the discussion on the role associated with private universities own characteristics as well as market structure due to lack of disaggregated information at private institution level. Originality and value: This paper contributes to the literature on the subject in Mexico by providing the first estimates of supply and demand elasticities for private higher education. Conclusions: Based on these estimates, it was possible to identify the dynamics of the equilibrium prices of tuition fees at private universities in Mexico and their relationship with both supply and demand factors.

Estimation of alcohol demand elasticity: Consumption of wine, beer, and spirits at home and away from home

AbstractMost of the previous research examined the demand for alcohol consumed at the off-trade (consumed at home). However, some consumers might prefer to consume alcohol on-trade (away from home) or switch between on-trade and off-trade consumption as a reaction to price or income change. We estimate the Quadratic Almost Ideal Demand System consisting of three broad alcohol categories, consumed on-trade and off-trade, to derive own-price, cross-price, and income elasticities. Selectivity due to the high censoring is treated, and special attention is paid to quality-adjusted price. Beer consumption is the most responsive to income as well as own price changes, while spirits are the least responsive. The own-price elasticity of wine is –0.66 and –1.00 at on-trade and off-trade, respectively. Beer is more price responsive, spirits are less price responsive, and consumption reacts weaker in the off-trade market. Own-price elasticities of demand range between –1.20 and –0.41 at the off-trade and between –1.51 and –0.63 at the on-trade alcohol market. Increasing the price of wine in one market decreases wine consumption in another one. Between the two markets, wine and spirits are complementary, and wine and beer are substitutes in both markets.

How elastic is alcohol consumption?

Strange as it may seem, Treasury, brewers, winemakers, distillers and drinkers all share a common interest: The taxation of alcohol and its price elasticity of demand. Treasury needs this information to determine revenue, the industry for pricing purposes, and drinkers bear the burden of taxation. This paper presents new estimates of demand elasticities of beer, wine and spirits for Australia. The estimates are considerably lower than those of Srivastava et al. (2014), who used monthly, off-premise consumption. Frequency of purchase and location of drinking are most likely the source of the differences. The paper demonstrates the importance of demand elasticities with simulations of changes in the tax mix for alcoholic beverages with partial and general equilibrium approaches.

A Disaggregated Analysis of Fish Demand in Myanmar

We estimate demand elasticities for fish in Myanmar by fish supply sources and household groups, using a multistage budgeting approach combined with quadratic almost ideal demand system (QUAIDS). Our findings show that fish demand from all supply sources and household groups has increased with income. A substantial share of increasing demand for all fish groups is likely to come from poor and rural households because the income elasticity of demand for all fish groups is higher for poor (0.40) and rural households (0.32) than for nonpoor (0.26) and urban households (0.29). Farmed-fish consumption is the most income-responsive in all household groups. Demand for fish tends to be less price elastic for poor households because fish is their cheapest animal protein source, and substitutes are limited. Effective management policies and new technologies are essential to sustain fish supply from capture fisheries and aquaculture to meet the increasing fish demand in Myanmar.

How Does Income Heterogeneity Affect Future Perspectives on Food Consumption? Empirical Evidence from Urban China.

China is undergoing a rapid dietary transition as well as a changing income distribution. In this paper, we examine the impacts of income heterogeneity on the prediction of food consumption using a dataset that covered 22,210 urban households in China’s 6 provinces. The two-stage Exact Affine Stone Index Implicit Marshallian Demand System (EASI demand system) model, which deals with the problem of censoring and endogeneity, is applied to estimate demand elasticity across income strata. Additionally, a dynamic simulation method considering income heterogeneity is conducted to predict future food consumption trends. The results reveal that income elasticity follows a decreasing trend with income growth. Furthermore, the results show that the consumption of major food items in the 15th period will increase by 7.9% to 42.0% over the base period. The growth potential of low-income groups is significantly higher than that of middle- and high-income groups. However, the prediction results may be overestimated if the differences in consumer behavior across income groups and the dynamic simulation procedure are not taken into account. Our study indicates that the consumption features of different income groups need to be included in food consumption forecasts. Moreover, the government should formulate food policies for different income groups to promote a sustainable food system transformation.

Estimation of Fruit and Vegetable Demand Elasticity in Bangladesh: The Quaids Model for the City of Dhaka South and Rural Areas of Sylhet Division

Estimation of Fruit and Vegetable Demand Elasticity in Bangladesh: The Quaids Model for the City of Dhaka South and Rural Areas of Sylhet Division

Import demand elasticities based on quantity data: Theory and evidence

AbstractCorrect estimates of import demand elasticities are essential for measuring the gains from trade and predicting the impact of trade policies. We show that estimates of import demand elasticities hinge critically on whether they are derived using trade quantities or trade values, and this difference is due to properties of the estimators. Using partial identification methods, we show theoretically that the upper bound on the set of plausible estimates is lower when using traded quantities, compared to the standard approach using trade values. Our theoretical predictions are confirmed using detailed product‐level data on US imports for the years 1993 to 2006. Our proposed method using traded quantities leads to smaller point estimates of the import demand elasticities for many goods and imply larger gains from trade compared to estimates based on trade values.

Structural changes in meat consumption in Vietnam: evidence from household survey data

Purpose This paper aims to provide empirical insight into the trends and structural changes in meat consumption in Vietnam.Design/methodology/approach This study applies the Quadratic Almost Ideal Demand System model on multiple cross-sectional data sets derived from the Vietnam Household Living Standards Survey (VHLSS) of 2004–2016 and follows a consistent two-step procedure to deal with the zero consumption issue. The estimated demand elasticities are then compared and analyzed over time.Findings The empirical results show that in the last decade, meat consumption patterns in Vietnam have undergone a remarkable structural change, with poultry and beef increasingly taking important roles in the meat consumption structure of households. In addition, demographic characteristics, including settlement type, household size and the age of the household head, have significantly influenced meat expenditure patterns in Vietnam.Research limitations/implications The paper considers the demand for meat consumed at home but not meat consumed away from home.Originality/value In many developing countries, increased disposable income, together with rapid urbanization and international integration, has significantly changed consumers' food consumption behaviors. This is one of the first studies using household survey data, which permits the exploration of heterogeneous preferences between consumers, to explore structural changes in food consumption patterns in Vietnam.

Estimating Elasticities for the Residential Demand of Electricity in Brazil Using Cointegration Models

Estimates of demand elasticities are crucial for the development of a range of energy policy studies, especially in countries of continental dimensions like Brazil. The paper explores the class of cointegration models as a provider of competing methods to estimate income, electricity price, and equipment price elasticities for the residential demand of electricity in Brazil from 1974 to 2016. We compare two cointegration methods: the well-known Johasen’s (1988) approach and the autoregressive distributed lag model of Pesaran et al. (2001). The use of the latter is novel in the electricity demand literature regarding Brazilian studies. The results show that the two models produce similar elasticities and indicate that the residential demand is stable. The long-run elasticities are much larger than the short-run elasticities. In the long run, we find that income is the main determinant of demand, while variations in electricity price and electric equipment price show modest effect on demand.