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Price Effects on Compound Commodities

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  • Junichi Minagawa
  • Thorsten Upmann

Abstract

We examine the effect of simultaneous price changes on the total demand for a group of goods, which we call a compound commodity. Specifically, we consider unit and proportional cost components (e.g., taxes, transportation costs) imposed on compound commodities. If the unit cost is positive, then the proportional cost raises the relative price of the more expensive good, and thus induces substitution towards the less expensive good within this group. Then, the substitution effect of the proportional cost for a compound commodity is non‐negative if and only if the compound commodity and the other goods are, on average, not strongly substitutable.

Suggested Citation

  • Junichi Minagawa & Thorsten Upmann, 2019. "Price Effects on Compound Commodities," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(2), pages 630-646, April.
    • Handle: RePEc:bla:scandj:v:121:y:2019:i:2:p:630-646
    DOI: 10.1111/sjoe.12297
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    References listed on IDEAS

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