Own-price Elasticities Research Articles

Effects of Socio-Economic and Demographic Factors on Meat Consumption Pattern in Iran: A Demand System Approach

Meat as one of the most important resources of protein has a special role in human nutrition. Understanding the meat consumption structure of households is essential for planning and policymaking in this regard. In this research, we studied consumption patterns of meat products including chicken, veal, lamb, and fish for households in Iran (Mashhad city) using demand system estimation. The hypothesis of this study is that chicken is a necessary goods and other types of meat are luxury goods. Given the cross-sectional nature of the data and presence of zero expenditure for some households, we used the censored demand model based on a consistent two-step approach. For this purpose, at first, four Probit models were estimated to determine the factors affecting the probability of purchasing each selected meat product. After that, the probability density function (PDF) and the cumulative distribution function (CDF) were calculated for each selected meat product, and the Almost Ideal Demand System (AIDS) considering PDF and CDF was estimated for all types of meat using a non-linear seemingly unrelated regression. Also, the effect of demographic variables on meat consumption pattern was considered in demand system. The results of expenditure elasticities confirmed the hypothesis. The highest own-price elasticity was related to veal. Based on compensated price elasticities, all types of meat were net substitutes for chicken and chicken was also a net complement for all types of meat. On the other hand, the only substitute for lamb and chicken was veal, but with compensating income effect fish also became a substitute for them. So, in the event of an increase of the price of lamb and chicken, we recommend subsidizing the consumers with low purchasing power in order to increase the diversity of consumption of protein products. This can increase the consumption of fish.

Analyzing the Impact of Government Subsidies on Household Welfare during Economic Shocks: A Case Study of Iran

The study evaluates the effectiveness of Iranian government subsidies for households by comparing the welfare impact of food price shocks with the subsidy payments they receive. This helps us assess the government's efforts to reduce poverty in Iran. The household cost data in 2020 was used to calculate compensated price elasticities using the Quadratic Almost Ideal Demand System (QAIDS). Results showed negative and less than one own-price elasticities for all food items, with a sensitivity to changes in income greater than one for demand of cereals, cooking oil, and fruits. Then, compensated variations (CV) welfare index was used to evaluate the effectiveness of government support payments in reducing household vulnerability due to food price increases. The results showed that the CV fluctuates between 8.05-80.46 $ under different scenarios. In other words, consumers are in a worse situation in terms of welfare and their expenditure increases. The vulnerability index of low-income households, after applying different food price scenarios, is in the range of 1.46-14.67%, which is reduced to 1.35-14.53% by implementing the cash-targeted subsidy policy. In other words, the effectiveness of the government's subsidy policy of $19 per person could reduce the vulnerability of these households by only 0.14%.

The price elasticity of heated tobacco and cigarette demand: Empirical evaluation across countries.

The market for heated tobacco products (HTPs) has grown rapidly in recent years, and many governments have started to include HTPs in tax codes to regulate their use. Currently, the evidence on how HTP prices impact tobacco use behaviors or whether consumers consider them as economic substitutes for cigarettes is lacking. This study is the first to answer these questions with a unique database to assess the own- and cross- price elasticities of HTP and cigarette demand. We collect a unique database of quarterly retail prices and sales of heated tobacco units and comparable scale cigarettes from 2014 to 2022, available for most countries where both HTPs and cigarettes are sold, and estimate the own- and cross- price elasticities of cigarette and HTP demand using a seemingly unrelated regression model. We find that HTP demand is price elastic (i.e., sensitive to prices) and has an own-price elasticity of -1.2 to -1.3, about four times greater than the own-price elasticity of cigarettes, which is about -0.3. We also find that cigarettes and HTPs are weak economic substitutes: while HTP demand is responsive to higher cigarette prices, cigarette demand is not sensitive to HTP prices. Our results suggest that tax policies that increase HTP and cigarette prices simultaneously will reduce HTP consumption without increasing cigarette consumption.

AN EFFECTIVE PRAGMATIC ANALYSIS OF SOYBEAN IMPORTS DEMAND IN EGYPT: IMPACT OF PRICE AND EXPENDITURE

This study empirically analyses the demand for soybean imports from Argentina, the USA, and other countries to Egypt using the Almost Ideal Demand System (AIDS model) during the period (2001-2021). The model parameters used to calculate the Marshallian elasticities for which the own-price elasticities of soybean imports are 1.175, -0.857, and 0.101 for Argentina, the USA, and other countries, respectively. The cross-price elasticity of soybeans imported from Argentina and the USA are complementary relationships; and the soybeans imported from the USA have a substitutability relationship with other countries. Expenditure elasticities are elastic for soybeans imported from the USA and inelastic for soybeans imported from Argentina. If the expenditure on soybean imports increases by 10%, the soybeans imported from the USA and Argentina will increase by 11.23% and 7.36%, respectively. So, the research suggests that, in order to avoid becoming dependent on a small number of nations, Egypt must diversify the sources of its soybean imports. Additionally, it can lower imports in the future by boosting domestic manufacturing and using a variety of supply sources for goods That alludes to the primary innovation of the research, which is that soybeans imported from the USA have a substitutability relationship with other nations and a complementing cross-price elasticity with soybeans imported from Argentina. Keywords Soybeans, Demand system, AIDS model, Marshallian elasticities, expenditure elasticities.

The demand for sparkling wine: insights on a diversified European market

PurposeThe article aims to study the demand for sparkling wines in Europe. The main objective is to estimate the classic demand parameters aggregately for the entire European area (European Union and the United Kingdom) and separately for groups of countries characterized by wine markets with similar characteristics.Design/methodology/approachUsing 15-years market data for different wine categories from the Euromonitor Passport database, the estimation of price and income elasticities is performed through a Quadratic Almost Ideal Demand System. In line with the objectives, the model is applied first to the whole European area and then separately to the considered groups of countries (subareas). To identify homogeneous subareas, a cluster analysis was performed on basic characteristics of the wine market.FindingsWhen considering the European market as a whole, sparkling wines should be considered a luxury category with a high own-price elasticity. However, the structure of their demand is rather different in different sub-areas. The observed heterogeneity suggests that differentiated policy and marketing considerations should be made. In addition, it widens the possibilities for producers, who can choose the submarkets that respond best to their needs to export their sparkling wines. This seems particularly important in markets, like the sparkling wine ones, that are experiencing a continuous expansion over the last decades.Originality/valueDespite using a methodology well-established to study wine and alcohol demand, the study fills a considerable gap in the literature. Although the demand for sparkling wine is growing worldwide, so far only a couple of studies have engaged in the analysis of its structure. In Europe, the largest market for sparkling wine, this kind of studies is completely lacking.

Analyzing per capita food consumption patterns in net food-importing developing countries

Net food-importing developing countries, which account for 30% of countries globally, and roughly 20% of the global population, must seek to reduce their vulnerabilities in food production trade shocks. This study investigates per capita food consumption patterns in 60 net food-importing developing countries using ICP 2017 data for eight food categories. Employing the linear approximate, almost ideal demand system model, the research derives marginal shares, income and price elasticities of demand, shedding light on consumption behaviors and responsiveness to changes in income and prices. Results highlight that additional expenditure on per capita food consumption is primarily allocated to fruits, vegetables, meat, and bread and cereals, with considerable variations among countries. At the same time, minimal allocation is observed for sugar and honey, as well as fats and oils. Income elasticities indicate varying degrees of responsiveness across food categories. In contrast, own-price elasticities underscore significant sensitivity to price fluctuations, notably for beverages, milk, cheese, and eggs, meat, fats and oils, and fish and seafood. Moreover, cross-price elasticities suggest predominantly substitution relationships between pairs of food categories, on average. Additionally, a visually informative map displaying estimated marginal shares, income elasticities, and own-price elasticities for the eight food categories was created. These findings offer valuable insights for policymakers and stakeholders in understanding consumption dynamics and formulating effective strategies to address food security and welfare concerns in net food-importing developing countries.

Estimating own-price and cross-price elasticity of cigarette consumption by price tiers in Bangladesh

ObjectivesThe overall price elasticity of cigarette consumption in Bangladesh has been studied extensively. The estimates of price elasticity by price tiers are not available in the existing literature.MethodsUsing cohort data...

Price responsiveness of solar and wind capacity demands

Accurate estimates of the price responsiveness of residential, commercial, and industrial electricity demands are essential for energy policy modelling, integrated resource planning, and determining a competitive wholesale electricity market's generation levels, prices, and capacity investments. Hence, we estimate the own-price elasticities of solar and wind capacity demands of a load serving entity (LSE) that provides retail electricity service, thereby answering two interrelated research questions: (1) does solar capacity demand far exceed wind capacity demand? and (2) are solar and wind capacity demands price-elastic? Inspired by the theory of input demand under input price uncertainty, our innovative methodology integrates (a) wholesale spot energy price forecasts by time of day; (b) pseudo data found by minimizing a LSE's annual risk-adjusted budget for procuring solar and wind capacities; and (c) econometric analysis of (b) to estimate the extent of substitutability between solar and wind capacities and the own-price elasticities of solar and wind capacity demands. Using Texas as an illustrative example, we find that when solar and wind power purchase agreements have similar energy prices, solar capacity demand is approximately four times wind capacity demand. Further, the own-price elasticity estimates are −5.34 for solar capacity demand and −5.65 for wind capacity demand. As a result, solar and wind capacity demands tend to substantially grow (shrink) in response to declining (rising) solar and wind energy prices. This lends support to proposals to raise solar and wind energy prices for mitigating the adverse effects of large-scale variable renewable energy development on an electric grid's efficient operation and system reliability. However, adopting such proposals also slows the grid's pace of decarbonization, thus underscoring the policy and regulatory challenges in the quest for a clean and sustainable electricity future. Hence, our policy recommendation of price managing solar and wind capacity demands is a topic of policy debate that deserves the attention of an electric grid's stakeholders.

Modeling the potential impact of a sugar-sweetened beverage tax on ischemic heart disease and stroke in Brazil.

A high intake of sugar-sweetened beverages (SSBs) is associated with the risk of several chronic diseases, including ischemic heart disease (IHD) and stroke. This study aimed to model the impact of a 20% tax on all SSBs for IHD and stroke among Brazilian adults. This was an ex-ante risk comparative study. The model applied a 20% tax on SSBs and projected the incidence, prevalence and mortality of IHD and stroke over a 20-year period (2019-39). Using data on consumption, previously published cross- and own-price elasticities of SSBs, and relative risk, we estimated changes in IHD and stroke burden. Our model predicts that a 20% SSB tax may reduce new cases of IHD by ~13%, especially among women, and avert ~8% of the deaths attributable to IHD over 20years. These results represent a decrease of 19 543 new cases and 8466 and 7274 fewer deaths in the period for men and women, respectively. Estimates of reduction in incidence, prevalence and deaths from stroke were not significant over 20years. Even under conservative assumptions, our study found that a small reduction in SSB consumption led to a substantial decrease in IHD incidence and mortality in Brazil.

A Micro-perspective Analysis of the Demand for Greek and Non-Greek Yogurt in the United States Over Calendar Years 2018 to 2020

AbstractUsing the Heckman framework, we develop profiles of households who purchase Greek yogurt and non-Greek yogurt and estimate own-price, cross-price, and income elasticities of demand. Attention is centered on the impacts of age, race, education, and ethnicity of the household head, household income, household size, region, the presence of children, and prices of Greek yogurt and non-Greek yogurt. This analysis rests on data acquired from Nielsen pertaining to 164,484 households over calendar years 2018–2020. Own-price elasticities are estimated to be −1.36 for Greek yogurt and −0.70 for non-Greek yogurt. Additionally, these yogurt products are not only substitutes but also necessities.

Analyzing Brand-Level Chips Demand in the United States Using the Multinomial Logit Model

This study estimates demand for 52 chip brands using IRI scanner data. The multinomial logit model addresses dimensionality and endogeneity issues in demand estimation. All brands exhibit elastic demand, with own-price elasticities between -5.0412 and -1.4251, indicating high consumer responsiveness to price changes. Notably, tortilla chip brands are less elastic than potato chip brands. Baked chip brands fall under the category of highly elastic brands. Funyuns has the most elastic demand, while Calidad Triangle has the least elastic demand. Cross-price elasticities (0.0010 to 0.0263), exhibiting the IIA property, indicate that consumers have brand loyalty, as seen by comparisons with own-price elasticities' magnitudes.

Changes in the structure of household expenditure in urban and rural China

ABSTRACT In the last two decades, China has witnessed a remarkable change in household expenditure structure following the rapid growth of household income. Using provincial-level panel data from 2001 to 2019 and the Quadratic Almost Ideal Demand System model, we derive the expenditure elasticities, as well as uncompensated and compensated price elasticities, for urban and rural households. Our results suggest that food and clothing are ‘necessity’ goods, whereas residence, education, and transportation are ‘luxury’ goods for both urban and rural households. Household facilities and medical services are necessities for urban households, while they are luxuries for rural households. All own-price elasticity estimates are negative, indicating that no Giffen goods exist. We also observe temporal changes in the household expenditure structure over China’s Five-Year Plan cycles. Finally, we find significant differences in the own-price elasticity across the eastern, central, and western regions with varying levels of economic development.

Dynamic analysis of Caribbean food import demand

Short- and long-run price and income elasticities are generally unavailable at the regional level for major imported food groups for the Caribbean. These elasticity measures are needed to enhance policymaking. This paper therefore seeks to determine the income, own-price and cross-price elasticities of eight major imported food groups. This will show the relationships between income and price changes on the import quantities for the major food groups. This was done using an error-corrected linear approximate almost ideal demand system (EC-LA-AIDS) for the period 1961–2021, using annual data. The study found that the theoretical restrictions of homogeneity and symmetry did not hold in the static LA-AIDS model but did in the EC-LA-AIDS model. The speed of adjustment parameter in the EC-LA-AIDS model revealed that imported beverages had the slowest adjustment to long-run equilibrium while all other imported food categories had a moderate adjustment speed. The study also derived short- and long-run income and price elasticities of import demand for the eight imported food categories. In both time horizons, income elasticities revealed that all imported food categories were normal goods. In both time horizons, imported meat and seafood, and sugar and honey were the most responsive to changes in income, while spices and tea was the least responsive. Own-price elasticities revealed that all imported food categories were import price inelastic except for meat and seafood which was found to be import price elastic in both time horizons. Additionally, cross-price elasticities unveiled various substitution and complementary relationships between pairs of imported foods. The study not only contributed empirical insights into the import demand dynamics of the Caribbean, but also emphasized significant policy implications arising from the research findings.

Analyzing Meat and Seafood Import Demand in Trinidad and Tobago Using the Linear Approximate Almost Ideal Demand System Model

A linear approximated almost ideal demand system model is specified to estimate imported meat and seafood demand in Trinidad and Tobago for the period 1976 to 2019 using annual data. Model parameters were estimated using seemingly unrelated regression with theoretical restrictions imposed. The results found that own-price of imported poultry and seafood negatively affected import expenditure share while own-price positively affected import expenditure share for imported beef, pork, and mutton. In addition, income negatively affected the import expenditure share of imported beef but positively affected the import expenditure share of imported pork, poultry, seafood, and mutton over the study period. Expenditure elasticity for imported meats and seafood reveals that they are all normal goods. Imported beef, pork, poultry, seafood, and mutton had expenditure elasticities of 0.57, 1.13, 1.94, 1.12, and 1.05, respectively. Imported pork, poultry, seafood, and mutton were found to be luxuries with income-elastic import demand. Own-price elasticities reveal that imported poultry was the most import elastic with an own-price elasticity of 1.40, followed by imported seafood (1.22), beef (0.65), mutton (0.54), and pork (0.48). Cross-price elasticities revealed that various complementary and substitution relationships existed among imported meats and seafood over the study period. Hicksian cross-price elasticities showed that mostly substitution relationships existed between various pairs of imported meats and seafood. The study also highlighted some policy recommendations that can be derived from the results.

Estimating the effects of E-cigarette taxes: a generalized synthetic control approach

ABSTRACT We examine the effects of e-cigarette tax policies on the sales quantities, prices, and sales revenues of e-cigarettes, cigarettes, and smoking cessation products (SCP). The data we use is weekly purchases from Nielsen Retail Scanner Data between 2011 and 2017. With a generalized synthetic control (GSC) identification strategy, we measure the average tax effects of multiple treated regions in various treated periods against the untreated control regions and the untreated periods. We reach an estimate of −3.567 for the own-price elasticity of e-cigarette demand and an estimate of 0.433 for the pass-through rate of e-cigarette taxes to price in all treated regions. Our results indicate that cigarettes and SCP are substitutes for e-cigarettes. We also discover that e-cigarette taxes show heterogeneous effects under different policy motivations, with the ad valorem taxes having a larger impact on e-cigarette demand.

Is peer-to-peer demand cointegrated at the listing level?

In this paper, we analyse the long-run equilibrium demand of the peer-to-peer sharing economy. Our panel data demand model relates occupancy rates to relative prices of Airbnb and HomeAway listings, prices of competitors (hotels and apartments) and a proxy for income of tourists visiting the Canary Islands (Spain). We use a fractional heterogeneous panel data model which allows for a more general persistence and cointegration relationship and incorporates individual and interactive fixed effects. We find some evidence for (fractional) cointegration in P2P at the listing level. Regarding elasticities, classic cointegration methods give larger estimates for individual slopes and mean group coefficients than the fractional integrated heterogeneous model. Finally, own-price elasticities are inelastic, and the cross-price elasticity indicates that P2P listings and hotels are substitute goods. Income elasticity is lower than 1 and is not statistically significant, indicating that the demand for tourism in the Canary Islands is not sensitive to the economic conditions in the origin countries.

Shift or Pivot? Market Entry and Exit With Linear Supply and Demand Curves

Textbooks commonly misrepresent the effects of market entry and exit by consumers and producers as parallel shifts of linear market demand and supply curves. Such portrayals are inconsistent with the underlying premise that a market-level curve is the horizontal summation of individual-level curves. A more accurate depiction is a pivot: entry flattens (and exit steepens) a market-level curve. Reconceiving the effects of entry and exit as pivoting, rather than shifting, the curve has important implications for own-price elasticities, consumer surplus, producer surplus, the incidence of taxation, and the competitive market adjustment to a long run equilibrium. JEL codes: A22, B40, D01

Estimation of a demand system to obtain the price elasticities of water and elasticities of substitution in the Chilean industrial sector

A system of demand for inputs and productive factors is estimated to calculate the elasticities of substitution and the own-price elasticity of industrial water demand in Chile. A previous study used the Annual National Industrial Survey (ENIA) panel (1995–2014) to estimate the value of water and own-price elasticity through a translog production function. However, that database does not report the industrial firms' location to protect the informants’ statistical secrecy. In contrast, in this study, the survey ENIA 2018 is chosen since it includes the region where each firm is located, which allows for evaluating the endogeneity of the water price variable and using three instrumental variables related to the water supply. In addition, the performance of non-linear regression methods with constraints is evaluated to ensure that the estimated coefficients meet the conditions imposed by economic theory. The results show that the elasticity of industrial water demand is unitary but not statistically significant in most subsectors. The water demand in the wood and paper industry subsector is elastic (−2.2) and statistically significant. On the other hand, the elasticities of substitution obtained adopt values very low, indicating that water is an essential resource that is difficult to replace by other inputs or productive factors.

Consumer demand analysis of sugar-sweetened beverages in Nigeria

Sugar-sweetened beverages (SSB) represent a leading public health concern worldwide and the World Health Organization recommends for fiscal approach, by raising prices through taxation to discourage the consumption of SSB. This study was conducted to explain the consumer demand for sugar-sweetened beverages in Nigeria. The key objective of the study is to estimate expenditure and price elasticity of demand as a first and necessary step to assess the impact of the sugar tax. Data from the 2018-2019 National Living Standard Survey (NLSS), which contains detailed information on household food and beverage consumption as well as socio-economic variables was used. The Quadratic Almost Ideal Demand System was employed for estimation. The expenditure elasticity results revealed all non-alcoholic beverages to be normal goods, sachet water is categorised as a necessity, while bottled water and all sugary drinks were revealed to be luxury beverages. Own-price elasticity for all beverages was revealed to be greater than a unit (in absolute terms), implying that the beverages are price elastic. For SSB, malt drinks and soft drinks had higher elasticity estimates of -3.21 and -2.10 respectively. Also, substitutability was observed between SSBs and sachet water. These results show that demand for SSB is price-sensitive and the effective implementation SSB- tax has the potential to discouraging consumption of SSB in Nigeria.

Socioeconomic differences in the impact of prices and taxes on tobacco use in low- and middle-income countries-A systematic review.

There is indisputable evidence that increases in taxes that raise tobacco prices reduce tobacco use. Consumption taxes on manufactured tobacco products, however, can be regressive in socioeconomic status (e.g., when the ratio of tax paid to income is lower for higher-income groups than for lower-income groups). Nevertheless, if the poor or less educated are more price responsive, a change in tobacco tax may be progressive in socioeconomic status. Existing reviews clearly indicate that populations with lower income or education are more responsive to tobacco tax and price changes than higher-income and more educated populations in high-income countries. Research pertaining to low- and middle-income countries was, however, limited and inconclusive. We conducted a review of quantitative studies that examined if socioeconomic status modified the association between prices and taxes and tobacco use in low- and middle-income countries. We searched two electronic databases, two search engines, and two working paper repositories. At least two reviewers independently screened articles for inclusion, extracted detailed characteristics, and assessed the risk of bias of each included study. Thirty-two studies met our inclusion criteria. Overall, we found that the evidence in low- and middle-income countries was too limited and methodologically weak to make any conclusive statements. Our review highlights a number of data and methodological limitations in existing studies. The most important limitation was the lack of formal assessment of socioeconomic differences in price responsiveness. Only seven of 32 studies assessed statistically whether own-price effects were modified by socioeconomic status. Many modelling studies have examined the distributional effect of a tax increase on tobacco use, while assuming a strong own-price elasticity gradient in income. The poor were generally assumed to be more responsive to price by a factor of two to five, relative to the wealthy. Although there are theoretical reasons to expect poorer individuals to be more responsive to monetary prices than wealthy ones in low- and middle-income countries, our review provides little empirical support.