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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.

Suggested Citation

  • Kenneth Clements, 2006. "Price Elasticities of Demand Are Minus One-half," Economics Discussion / Working Papers 06-14, The University of Western Australia, Department of Economics.
  • Handle: RePEc:uwa:wpaper:06-14
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    References listed on IDEAS

    as
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    1. Substitutability and the Cost of Climate Mitigation Policy
      by noreply@blogger.com (David Stern) in Stochastic Trend on 2014-03-21 02:41:00

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    Cited by:

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    3. Clements, Kenneth W., 2008. "Price elasticities of demand are minus one-half," Economics Letters, Elsevier, vol. 99(3), pages 490-493, June.
    4. Clements, Kenneth W. & Gao, Grace, 2015. "The Rotterdam demand model half a century on," Economic Modelling, Elsevier, vol. 49(C), pages 91-103.
    5. Yingying Lu & David I. Stern, 2016. "Substitutability and the Cost of Climate Mitigation Policy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 64(1), pages 81-107, May.
    6. Lars-H. R. Siemers, 2014. "A General Microsimulation Model for the EU VAT with a specific Application to Germany," International Journal of Microsimulation, International Microsimulation Association, vol. 7(2), pages 40-93.
    7. Adam J. Davis & Karl R. Geisler & Mark W. Nichols, 2016. "The price elasticity of marijuana demand: evidence from crowd-sourced transaction data," Empirical Economics, Springer, vol. 50(4), pages 1171-1192, June.
    8. Peter Lloyd & Donald MacLaren, 2010. "Partial‐ and General‐Equilibrium Measures of Trade Restrictiveness," Review of International Economics, Wiley Blackwell, vol. 18(5), pages 1044-1057, November.
    9. Snow, Arthur & Warren, Ronald S., 2015. "Pigou’s Law and the proportionality of income and price elasticities of demand," Economics Letters, Elsevier, vol. 132(C), pages 136-138.
    10. Moresi, Serge & Zenger, Hans, 2018. "Recapture ratios in merger analysis," Economics Letters, Elsevier, vol. 170(C), pages 136-138.
    11. Lu, Yingying & Liu, Yu & Zhou, Meifang, 2017. "Rebound effect of improved energy efficiency for different energy types: A general equilibrium analysis for China," Energy Economics, Elsevier, vol. 62(C), pages 248-256.
    12. World Bank, 2011. "A New Slant on Slopes : Measuring the Benefits of Increased Electricity Access in Developing Countries," World Bank Publications - Reports 2742, The World Bank Group.
    13. Anke Leroux & Donald Maclaren, 2011. "The Optimal Time to Remove Quarantine Bans Under Uncertainty: The Case of Australian Bananas," The Economic Record, The Economic Society of Australia, vol. 87(276), pages 140-152, March.
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    15. Kurt Kratena, 2010. "International outsourcing and the demand for skills," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 37(1), pages 65-85, February.
    16. Carling, Kenneth & Håkansson, Johan & Meng, Xiangli & Rudholm, Niklas, 2017. "The effect on CO2 emissions of taxing truck distance in retail transports," Transportation Research Part A: Policy and Practice, Elsevier, vol. 97(C), pages 47-54.
    17. Brand, Christian & Tran, Martino & Anable, Jillian, 2012. "The UK transport carbon model: An integrated life cycle approach to explore low carbon futures," Energy Policy, Elsevier, vol. 41(C), pages 107-124.
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