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On Interpreting Inverse Demand Systems: A Primal Comparison of Scale Flexibilities and Income Elasticities

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  • Hoanjae Park
  • Walter N. Thurman
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    Abstract

    Scale flexibilities in inverse demand systems describe how marginal valuations change with expansions in the consumption bundle. Such effects clearly are related to income elasticities in direct demand systems. However, the connection is not so close as it first appears. We argue that the link between scale flexibilities and income elasticities is tight only if preferences are homothetic, a situation where neither measure is interesting, or if all elasticities of substitution are unitary. We make clear the relationship between the two measures in a coordinate system focusing on how marginal rates of substitution change with consumption scale and proportion. Copyright 1999, Oxford University Press.

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    File URL: http://hdl.handle.net/10.2307/1244337
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    Bibliographic Info

    Article provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.

    Volume (Year): 81 (1999)
    Issue (Month): 4 ()
    Pages: 950-958

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    Handle: RePEc:oup:ajagec:v:81:y:1999:i:4:p:950-958

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    Cited by:
    1. Goodwin, Barry K. & Harper, Daniel C. & Schnepf, Randall D., 2000. "Short-Run Demand Relationships In The U.S. Fats And Oils Complex," 2000 Conference, April 17-18 2000, Chicago, Illinois 18942, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    2. C. Carter & S. Mohapatra, 2013. "Inventories and antidumping: the case of orange juice trade," Empirical Economics, Springer, vol. 45(1), pages 247-266, August.
    3. Asche, Frank & Zhang, Dengjun, 2013. "Testing Structural Changes in the U.S. Whitefish Import Market: An Inverse Demand System Approach," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 42(3), December.
    4. Beach, Robert H. & Holt, Matthew T., 1999. "Incorporating Quadratic Scale Curves In Inverse Demand Systems," 1999 Annual meeting, August 8-11, Nashville, TN 21579, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Gary Wong & Qiao Yu, 2001. "Inverse Demand Systems for Composite Liquid Assets: Evidence from China," School of Economics and Finance Discussion Papers and Working Papers Series 097, School of Economics and Finance, Queensland University of Technology.
    6. Hoanjae Park, 2004. "On inferring individual behaviour from market behaviour in a predetermined quantities model," Applied Economics, Taylor & Francis Journals, vol. 36(7), pages 715-721.
    7. Keith R. McLaren & K. K. Gary Wong, 2008. "The Benefit Function Approach to Modeling Price-Dependent Demand Systems: An Application of Duality Theory," Monash Econometrics and Business Statistics Working Papers 8/08, Monash University, Department of Econometrics and Business Statistics.

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