Own-price Elasticity Of Demand Research Articles

Own price elasticities of the demand for sugar-sweetened beverages in Bangladesh

BackgroundConsumption of sugar-sweetened beverages (SSB) is a major global public health problem. Increasing the price of SSBs through taxation is an effective tool to reduce SSB consumption. Price-elasticity estimates are useful in measuring the effect of taxation on consumption. We estimated the own price elasticities of demand for SSBs in Bangladesh, which will inform how SSB taxes could affect behaviour.MethodsWe used Household Income and Expenditure Survey (HIES) 2016 data, which is a nationally representative dataset at the household level across the country and is conducted using stratified random sampling method. Deaton’s method was used to estimate the price elasticities for SSBs in Bangladesh.ResultsWe found that the own price elasticity for SSBs varied between − 0.53% to -1.17% by types of SSBs in Bangladesh. The price elasticity for soft drinks was − 1.17, indicating that if the price of soft drinks increases by 10% via taxes, the quantity consumed of these beverages would reduce by 11.7%.ConclusionThis is the first study that estimates the own price elasticities of demand for SSBs in Bangladesh. Our results suggest to raise SSB prices through increased taxation in order to reduce SSB consumption and ensure public health gains in Bangladesh.

Household Demand Analyses in Uyo Metropolis: A Study of Selected Determinants Responsiveness

The study is an attempt to evaluate household demand analyses in Uyo metropolis: a study of selected determinants responsiveness. The research employed survey data obtained from 200 households via individual interviews utilizing a meticulously designed questionnaire. Information on income, age, sex of household head, household size, educational background was collected to capture household demography. The data were also collected on household expenditure on the selected food and nonfood item, their respective prices and the quantity consumed in a given month. The study adopted the quadratic almost ideal demand system (QUAIDS) as a model. The result indicated that factors that affect household food expenditure on Rice, Beans and Garri are the prices of the goods, income, household size, level of education and the prices of other goods. Similarly, the study found negative compensated and uncompensated own price elasticity of demand for the food items rice, beans and garri while beer has a positive own price effect. All the goods were found to be price inelastic as their own price elasticity lies between -1 and 1. Again, all food items were found to have negative cross price elasticity and which is less than one indicating that they are substitutes and price inelastic. On the other hand, the study found evidence of complementary relationship between beer and food items like garri and beans. The study recommends that the government subsidize food prices, lower taxes on these goods, provide cash transfers to the poor, or promote the production of these food items by giving preference to farmers who produce them in order to lessen the impact of such price increases on the demand for these commodities.

Energy price volatility affects decisions to purchase energy using capital: Motor vehicles

I investigate how energy price volatility affects consumer decisions to purchase durable, energy using capital, motor vehicles. A cointegrating vector autoregression (CVAR) model indicates that; (1) high price volatility reduces the negative effect of motor gasoline prices on monthly purchases of motor vehicles, (2) consumers consider passenger cars to be an inferior good and this drives the substitution of light trucks for passenger cars, (3) the own price elasticity of demand for vehicles is about −0.3, which is consistent with estimates used to justify The Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule for Models Years 2021–2026 Passenger Cars and Light Trucks. Simulating the CVAR model indicates that implementing an energy tax rapidly or during a period of low price volatility has a greater effect on motor vehicle sales than implementing the same tax slowly or during a period of high price volatility. Together these results suggest that more research should focus on how energy price volatility affects consumer decisions to purchase energy using capital.

Farm households’ input demand and output supply response to price shocks in Nigeria

Panel data on farm household output for a full range of commodities are scarce, and as a consequence, only a few other studies have considered estimating farm household output supply and input demand response to price changes in Nigeria using panel data within the multiple inputs and multiple outputs frameworks. This study examined the extent to which farm households' respond to production inputs and output price changes using panel data covering the period 2010-2016. Specifically, to determine whether a commodity output's price positively affects its supply and other output categories; and whether an input price negatively affects its usage in Nigeria within the multiple input and multiple output (MI-MO) framework. The translog profit function was used to simultaneously examine the production response of farm households' in terms of the factor demand and produce supply. Seven output supply and four input demand equations were estimated. The results indicated that the response of output supply to own price ranged from 0.59 for animal products and 1.24 for cereals. The own-price demand elasticities of farm input range from -0.82 for mechanisation to -1.46 for intermediate inputs. Also, a substantial degree of farm households' response to input price shocks. Farm inputs and outputs were economic complements to price changes. Therefore, price policy issues aimed at improving the production response of farm households' to both input and output price shocks should be developed with a particular focus on farm inputs.

Behavioral economic relationship between cannabis and cigarettes: Evidence from hypothetical purchase tasks.

In the United States (U.S), cannabis policies have been increasingly liberalized whereas tobacco policies have been increasingly stringent. Given the high prevalence of cannabis and tobacco dual use, there are concerns that a policy regulating one substance may unintendedly influence the other. This study examined the responsiveness of the demand for cannabis joints and cigarettes when price varied. The study included 338 adult participants (21+) who used both cannabis and tobacco and lived in one of the U.S. states with recreational cannabis legalized by the time of interview in 2019. They completed hypothetical purchase tasks to indicate the quantity desired of cannabis joints and cigarette packs 1) when only one substance was available with escalating prices and 2) when both substances were concurrently available with escalating prices of cannabis joints and a fixed price of cigarette packs. We estimated 1) the own-price elasticity of demand for each substance using nonlinear exponential demand model, and 2) the cross-price elasticity of demand at aggregate level using nonlinear exponential demand model and at individual level using log-linear demand model. The estimates for the rate of change of own-price elasticity (α) were 0.0011 (SE=0.000039, p<0.001) for cannabis joints and 0.00095 (SE=0.000037, p<0.001) for cigarette packs. The aggregate-level estimates of cross-price elasticity (I=13.032, SE=0.34, p<0.001; β=0.0029, SE=0.0021, p>0.05) suggest an independent relationship between the two substances. At individual level, 78.70% of the participants treated the two substances as independent, 17.46% as complements, and 3.85% as substitutes. For most adults who used both cannabis and tobacco in the U.S., cannabis joints and cigarettes had an independent relationship. Policies regulating the price of cannabis may not have large unintended consequences on cigarette use.

Firm’s Own Price Elasticity of Demand in Dominant Position Analysis

Firm’s Own Price Elasticity of Demand in Dominant Position Analysis

Consumer's demand for Disinfectants and Protective Gear from COVID-19 infection in Al-Hofuf, Saudi.

The paper aims to estimate consumers' demand for personal protecting products (PPP) from COVID-19. Thus, the paper collected primary data on consumers' demand for PPP utilizing the timeframe of the COVID-19 pandemic. The paper uses two sample t-test and Anova test to examine mean differences in the quantity consumed of PPP. Also, the paper uses Almost Ideal Demand System (AIDS) to estimate the responsiveness of quantity demanded of PPP for changes in prices and consumers' income. The results show that there is a significant difference in the mean of quantity demanded of facemasks among men and women. Also, the results show that there is a significant difference in the mean of quantity demand for facemasks, gloves, and hand sanitizer based on respondents' level of education. In addition, the paper analyzed the effect of price and income changes on quantity demanded of PPP. The findings indicate that the quantity demanded of facemask and gloves are sensitive to changes in consumers' income. Also, soap, hand sanitizer, and gloves were recognized as complementary products. Furthermore, facemasks were identified as a complementary product with glove use. Lastly, the own-price elasticities of demand revealed that the demand for PPP is price insensitive. the paper recommends that the consumer protection unit closely monitor the prices of PPP since the sellers have an opportunity to increase those products prices and maximize their revenue by exploiting the COVID-19 pandemic.

PRICE ELASTICITY OF DEMAND AND THE IMPACT OF TAXING SUGAR-SWEETENED BEVERAGES IN MALAYSIA

The Malaysian government implemented an excise tax of MYR 0.40 per L on sugar-sweetened beverages in July 2019. Excise tax is imposed on sweetened drinks containing more than 5 g of sugar per 100 ml, flavoured Ultra High Temperature milk-based drinks, and fruit juices with more than 7 g and 12 g of sugar per 100 ml, respectively. We analysed the impact of excise tax on the consumption of SSBs by developing a demand model for SSBs to estimate the elasticity of demand using a two-way fixed-effect model. The tax increased the price of 1 L SSBs by 8.33%, and we estimated it to decrease the consumption of SSBs by 9.25%. The estimated own-price elasticity of demand for SSBs was −1.11 (95% CI: −1.97 to −0.25). Price of SSB is a determinant for SSB demand, but income or the price of milk are not. The estimated excise revenue calculated was MYR 357.61 million. However, industry responses via product reformulation and pass-through rates could reduce revenue and enhance or reduce health impacts.

Demand for tobacco products in Bangladesh

BackgroundTobacco tax increase is considered as one of the most effective means to reduce tobacco consumption and its consequences. An increase in taxes, which results in an increase in the...

Between online and offline markets: A structural estimation of consumer demand

While the literature on comparing the online and offline markets from the supply-side perspective is extensive, fewer researches have focused on the demand-side. Using a large-scale point-of-sales (POS) dataset on consumer packaged goods, we estimate a structural demand model and conducted counterfactuals of the price change or product stockouts. Our key findings are: 1) the own-price elasticity of demand is higher offline (i.e., –1.74 on average) than online (i.e., –0.87 on average). 2) The cross-price elasticity is also higher offline (i.e., 0.17 on average) than online (i.e., 0.04 on average). 3) When a product is out-of-stock, a larger portion of the loss of the market share is recovered more in the common products in the offline markets than that in the online markets. Specifically, 6.55 % of the loss of the market share goes to common products offline on average, while 6.05 % of the loss of the market share goes to the common product online on average. Our further analyses show that, when considering substitute products, the impact of price increases is surprising. The retailer may not be worse off by increasing prices because the gains in the revenue from the substitute products can make up more than the losses. The manufacturers may lose revenue by increasing prices or product stockouts. However, consumers are hurt more in the offline markets following the price increases of the common products because the offline market is more concentrated on the common products.

Estimating elasticities of substitution for sin goods

ABSTRACT Own-price and cross-price elasticities of substitution are estimated for the six ‘sin’ goods of spirits, beer, wine, casino gambling and lotteries using aggregate U.S. quarterly national data. The own-price and cross-price elasticities of substitution are not constrained to be constant over the sample and are estimated using the Fourier flexible form. There is evidence of much variation in substitution over the sample, including during the recessions. All ‘sin’ goods, except lotteries, have inelastic demands. Beer and tobacco have the most inelastic demands which are consistent with the evidence that beer is the most popular type of spirit while tobacco products are often considered addictive commodities. The three types of alcohol of spirits, beer, and wine are Morishima cross-price substitutes. Casino gambling and lotteries are Morishima cross-price substitutes having an elastic response to price changes in casino gambling but have and inelastic response for price changes of lotteries. Estimates show that the remaining ‘sin’ goods are complements in use. Policy makers must consider how a tax on a ‘sin’ good will impact demand for the good partially based on its own-price elasticity of demand as well as the cross-price elasticity of substitution or complementarity relationships with other ‘sin’ goods.

Revisiting the economic valuation of agricultural losses due to large-scale changes in pollinator populations

We discuss comparative static partial equilibrium approaches for large-scale monetary valuations of animal-mediated crop pollination. These approaches rely upon reported crop production values, own-price elasticities of demand and experimentally found dependence ratios that express crop-specific yield shares due to pollinators. We dismiss the established long-term approach given the difficulty of anticipating the adaptation of the bioeconomic system to changes of pollinator abundance. Instead, we suggest another more parsimonious method, which assesses the short-term welfare effects following a sudden change in pollinator abundance. Using 2016-2018 data on agricultural production, we estimate the worldwide welfare effects due to a pollinator collapse for a range of plausible own-price elasticities, both from short-term and long-term perspectives. For the former we also simulate a global recovery scenario. Depending on the overall price elasticity assumed, the short-term effects of a total pollinator loss lie between 1 and 2 % of global GDP. We also apply the different valuation approaches to more detailed German 2006-2016 crop production data, where we account for crop-specific demand. As the reported dependence ratios vary in wide ranges, we rely upon stochastic simulations to obtain likely distributions of the German welfare effects.

Gendered analysis of the demand for poultry feed in Kenya

ABSTRACT This paper uses a translog cost function approach to study the farm-level demand for poultry feed in Kenya. The study estimates the demand elasticities of the three common types of poultry feed; mixed feed, grain, and leafy vegetables. The estimated model was used to obtain estimates of Marshallian demand elasticities for poultry feed in Kenya for male-headed and female-headed households. The elasticities reported can be used by researchers and policy analysts to evaluate policy effects of changes in feed demand quantities within the livestock economy in Kenya. Moreover, these parameters can provide more reliable estimates of the total change in feed demand than relying on subjective measures of elasticities. Furthermore, the results of this study are essential in enhancing gender equitable policy formulation. Our findings show that own price elasticities of demand for all the feed types are negative and less than unit in absolute value for the sample of farmers surveyed, indicating that the feed types are relatively inelastic. The cross-price elasticities indicate that vegetables and grain are compliments while the rest of the poultry feed types are substitutes. The results also show that there are substantial gender differences in feed demand and elasticities of feed demand with respect to feed prices.

Towards agricultural demand for the main energy carriers in Iran: Application of linear approximate almost ideal demand system (LA-AIDS) analysis

Abstract Due to the necessity of cognizance of demand for the various forms of energy in the agricultural sector in Iran’s economy and considering the effects of price liberalization policies on forms of energy, analysis of the main energy carriers’ demand is very important. This study used the LA-AIDS approach and ISUR technique to estimate the demand and elasticities for various energy carriers. Also, the welfare effects of increasing energy prices under the 20, 40, 60, 80 and 100% scenarios are evaluated using the compensating variation (CV). The uncompensated and compensated own-price demand elasticities for oil products, electricity and, natural gas carriers were −1.21, −0.85 and −0.55, and −0.98, −0.32 and −0.30, respectively, confirming the demand theory. The cross-price elasticities showed that electricity has substitutability and complementarity relationship with oil products and natural gas, respectively, while the relationship between natural gas and oil products is a substitutability relationship. The income elasticities of energy usages estimated to be 0.64, 1.2 and 1.05. Agricultural producers’ welfare would experience a further decrease in oil products and electricity price liberalization, though the welfare impacts of natural gas are trivial. As price elasticity is different in the agricultural sector, price policies, then price liberalization and omitting energy subsidy should be applied based on the elastic or inelastic of energy carriers. The price policies effectiveness on oil products is more than electricity and natural gas. Given the prevalence of consumption and high price elasticities of oil products and pollutants, rising oil prices can reduce their consumption and environmental pollution.

Estimated impact of the GST on tobacco products in India

ObjectiveTo examine the potential impact of the goods and services tax (GST) on price, consumption and tax revenue from tobacco products in India and across states.MethodsData on prices, tax rates...

Consumer responses to front-of-package labeling in the presence of information spillovers

Voluntary nutrition labeling, a means of nutrition quality disclosure, was introduced in the U.S. over the last decade by leading food manufacturers, primarily in the form of front-of-package (FOP) labeling. This article examines how consumer responses to FOP labeling via product participation and information spillovers shift consumer demand across competing products. Applying a random coefficient logit demand model to sales data from the U.S. ready-to-eat cereal market (RTEC) empirically confirms a positive participation effect of FOP and a strong negative spillover effect on non-participating products. Further results indicate that the participation and spillover effects are stronger for healthy RTECs than they are for unhealthy ones. Moreover, ignoring such effects leads to underestimation of consumer valuation of FOP labeling for participating products, higher own-price elasticities of demand and lower price-cost margins. The findings also suggest that an incentive in a firm’s voluntary participation in self-regulated labeling programs is to avoid negative treatment externalities and that less health-conscious consumers are not influenced by spillover effects. Overall, this article highlights the importance of including spillover effects in the evaluation of FOP programs and that FOP can play a positive role in improving the healthfulness of consumer choices.

Government doctor absenteeism and its effects on consumer demand in rural north India.

Government doctor absenteeism from their public posts is a sizable problem across developing economies. The consumer demand estimation for outpatient fever treatment presented in this paper investigates the interrelationship between government doctor absenteeism and the large informal healthcare sector. Using a counterfactual framework, this paper estimates treatment effect of eliminating government doctor absenteeism. The effects are measured by changes to the market share of government Bachelor of Medicine and Bachelor of Surgery (MBBS) providers and resulting own-price elasticities of demand for government MBBS providers and unqualified providers. Modelling incorporates patients expected health outcomes by provider via the use of a qualitative measure of word-of-mouth recommendations. Results indicate that eliminating government MBBS provider absenteeism in North India would increase utilisation of government outpatient fever treatments from 18% to 50%.

The price elasticity of quantity, and of quality, for tobacco products.

We use household survey data to estimate the price elasticity of quantity, and of quality, for tobacco products. In our data, commonly used estimation methods suggest an own-price elasticity of demand of about -1. These methods add together responses on the quantity margin and the quality margin. Just one third of the response to price is from quantity and two thirds is from quality. The simulated effect of higher excise taxes is to reduce overall quantity by just one third of what is predicted if the quality response is ignored. Higher taxes also shift demand to lower quality tobacco products.

On the Nature of Equilibrium in Monopolistic Competition

This paper shows that product differentiation is compatible with perfect competition under free entry and exit and small firm size relative to size of market. Thus, monopolistic competition is a form of perfect competition. Although no product sold under monopolistic competition has a perfect substitute, each product has many close, albeit imperfect, substitutes, which have a cumulative effect on own-price elasticity of demand. With infinitely elastic demand, excess capacity and sub-optimal firm size disappear from monopolistic competition in equilibrium. The number of basic industrial structures is reduced to three—monopoly or single seller, oligopoly or competition among the few, and perfect competition or competition among the many. Perfect competition can be divided into perfect competition with homogeneous products and perfect competition with differentiated products. Advertising can pay off under the latter, since products have separate identities and price depends on quality, even though firms are price takers for any given quality. Under oligopoly, firms will behave like Chamberlin’s monopolistic competitors when certain conditions are met, but there is no guarantee that these conditions ever will prevail. Finally, I ask how small a firm’s share of industry output value must be if it is to be a de facto price taker.

Demand for Selected Fruits Among Students of A Tertiary Institution in Southwest Nigeria

ABSTRACTIncreased demand for fruits among students is pivotal to healthier lifestyles and better learning abilities. However, there is a paucity of information on elasticity of university students’ demand for fruits in Nigeria. The demand for selected fruits among students of University of Ibadan, Nigeria, was therefore assessed in this study. A multistage sampling technique was used to collect primary data from 300 respondents using a questionnaire. Data were analyzed using descriptive statistics and Quadratic Almost Ideal Demand System model. A majority (65.3%) of the respondents were females, less than 20 years of age (51%), and were in either their first or second year of study. Only 40% of the students with less than N10,000 monthly stipends demanded for fruits daily. Own prices, age, sex, and stipends explained fruit demand among the students. Expenditure elasticities for pineapple (1.30), orange (1.21), banana (1.07), apple (1.38), and cucumber (1.16) indicated that the selected fruits were luxury goods while watermelon was a necessity good (0.67). Own-price elasticity of demand for all the selected fruits was inelastic while the cross-price elasticity revealed that most fruits complemented one another except for watermelon which was the only substitute to other fruits. The study therefore recommended increased students’ stipends in order to drive daily fruit demand among the students of the tertiary institution.