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Price Elasticities of Demand Are Minus One-half

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  • Kenneth Clements

    (Business School, The University of Western Australia)

Abstract

As an empirical regularity for broad commodity groups, we show that price elasticities of demand are scattered around the value of minus one-half. We also show that this finding is not inconsistent with the utility-maximising theory of the consumer under the conditions of preference independence. When nothing is known about the price-sensitivity of a good, a reasonable first approximation to its price elasticity is thus minus one-half.

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File URL: http://www.biz.uwa.edu.au/home/research/discussionworking_papers/economics?f=146998
File Function: First version, 2006
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Bibliographic Info

Paper provided by The University of Western Australia, Department of Economics in its series Economics Discussion / Working Papers with number 06-14.

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Length: 14 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:uwa:wpaper:06-14

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  1. Brown, Alan & Deaton, Angus S, 1972. "Surveys in Applied Economics: Models of Consumer Behaviour," Economic Journal, Royal Economic Society, vol. 82(328), pages 1145-1236, December.
  2. Alan A. Powell, 1992. "Sato's Insight on the Relationship between the Frisch 'Parameter' and the Average Elasticity of Substitution," Centre of Policy Studies/IMPACT Centre Working Papers g-99, Victoria University, Centre of Policy Studies/IMPACT Centre.
  3. Espey, Molly, 1998. "Gasoline demand revisited: an international meta-analysis of elasticities," Energy Economics, Elsevier, vol. 20(3), pages 273-295, June.
  4. Jasper M. Dalhuisen & Raymond J. G. M. Florax & JHenri L. F. de Groot & Peter Nijkamp, 2003. "Price and Income Elasticities of Residential Water Demand: A Meta-Analysis," Land Economics, University of Wisconsin Press, vol. 79(2), pages 292-308.
  5. Barten, Anton P, 1977. "The Systems of Consumer Demand Functions Approach: A Review," Econometrica, Econometric Society, vol. 45(1), pages 23-51, January.
  6. Clements, Kenneth W & Selvanathan, Antony & Selvanathan, Saroja, 1996. "Applied Demand Analysis: A Survey," The Economic Record, The Economic Society of Australia, vol. 72(216), pages 63-81, March.
  7. Saroja Selvanathan & E. A. Selvanathan, 2005. "Is utility additive? Further evidence," Applied Economics, Taylor & Francis Journals, vol. 37(1), pages 83-86.
  8. Deaton, Angus, 1974. "A Reconsideration of the Empirical Implications of Additive Preferences," Economic Journal, Royal Economic Society, vol. 84(334), pages 338-48, June.
  9. Selvanathan, Saroja, 1987. "A Monte Carlo test of preference independence," Economics Letters, Elsevier, vol. 25(3), pages 259-261.
  10. Frank J. Chaloupka & Michael Grossman & Warren K. Bickel & Henry Saffer, 1999. "The Economic Analysis of Substance Use and Abuse: An Integration of Econometrics and Behavioral Economic Research," NBER Books, National Bureau of Economic Research, Inc, number chal99-1, May.
  11. Clements, Kenneth W., 2008. "Price elasticities of demand are minus one-half," Economics Letters, Elsevier, vol. 99(3), pages 490-493, June.
  12. Kenneth Clements & Wana Yang & Simon Zheng, 1997. "Is utility additive? The case of alcohol," Applied Economics, Taylor & Francis Journals, vol. 29(9), pages 1163-1167.
  13. Espey, James A. & Espey, Molly, 2004. "Turning on the Lights: A Meta-Analysis of Residential Electricity Demand Elasticities," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 36(01), April.
  14. Craig A. Gallet & John A. List, 2003. "Cigarette demand: a meta-analysis of elasticities," Health Economics, John Wiley & Sons, Ltd., vol. 12(10), pages 821-835.
  15. Molly Espey, 1996. "Explaining the Variation in Elasticity Estimates of Gasoline Demand in the United States: A Meta-Analysis," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 49-60.
  16. Izan, Haji Y. & Clements, Kenneth W., 1979. "A cross-cross-section analysis of consumption patterns," Economics Letters, Elsevier, vol. 4(1), pages 83-86.
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Blog mentions

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  1. Substitutability and the Cost of Climate Mitigation Policy
    by noreply@blogger.com (David Stern) in Stochastic Trend on 2014-03-20 21:41:00
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Cited by:
  1. Clements, Kenneth W., 2008. "Price elasticities of demand are minus one-half," Economics Letters, Elsevier, vol. 99(3), pages 490-493, June.
  2. Smith, Brett & Abdoolakhan, Zeenat & Taplin, John, 2010. "Demand and choice elasticities for a separable product group," Economics Letters, Elsevier, vol. 108(2), pages 134-136, August.
  3. Yingying Lu & David I. Stern, 2014. "Substitutability and the Cost of Climate Mitigation Policy," CAMA Working Papers 2014-28, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  4. World Bank, 2011. "A New Slant on Slopes : Measuring the Benefits of Increased Electricity Access in Developing Countries," World Bank Other Operational Studies 2742, The World Bank.
  5. Kurt Kratena, 2010. "International outsourcing and the demand for skills," Empirica, Springer, vol. 37(1), pages 65-85, February.

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