Price Elasticities of Demand Are Minus One-half
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.
|Date of creation:||2006|
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Economics Discussion / Working Papers
06-14, The University of Western Australia, Department of Economics.
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