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Derived Demand, Marketing Margins, and Relationship Between Output and Raw Material Prices

In: Market Interrelationships and Applied Demand Analysis

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  • Michael K. Wohlgenant

    (North Carolina State University)

Abstract

This chapter reviews the historical approach to modeling derived demand for raw materials, with a focus primarily on derived demand for agricultural inputs. This discussion is followed by the presentation of a general model of derived demand that allows one to link the system of consumer demand functions to the corresponding system of derived demand functions for agricultural inputs. The focus is on developing a framework that is theoretically consistent with consumer demand behavior and market intermediary behavior. The Gardner (1975) model develops theoretical implications for a long-run competitive behavior. The Wohlgenant (1989) model is an empirical model used to estimate and test basic tenets of competitive behavior for retail-to-farm price linkage of a complete system of demand functions. Empirical results from Chapter 5 for consumer demand for meats with linkages to other goods are used in the estimation of reduced-form equations for retail and farm prices, thereby linking retail demand to farm-level demand for each of the meat commodities. Tests for symmetry and constant returns to scale show consistency with the Gardner model.

Suggested Citation

  • Michael K. Wohlgenant, 2021. "Derived Demand, Marketing Margins, and Relationship Between Output and Raw Material Prices," Palgrave Studies in Agricultural Economics and Food Policy, in: Market Interrelationships and Applied Demand Analysis, chapter 0, pages 101-135, Palgrave Macmillan.
    • Handle: RePEc:pal:psachp:978-3-030-73144-1_7
    DOI: 10.1007/978-3-030-73144-1_7
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