Journal Article

On Interpreting Inverse Demand Systems: A Primal Comparison of Scale Flexibilities and Income Elasticities

Hoanjae Park and Walter N. Thurman

in American Journal of Agricultural Economics

Published on behalf of Agricultural and Applied Economics Association

Volume 81, issue 4, pages 950-958
Published in print November 1999 | ISSN: 0002-9092
Published online November 1999 | e-ISSN: 1467-8276 | DOI: http://dx.doi.org/10.2307/1244337
On Interpreting Inverse Demand Systems: A Primal Comparison of Scale Flexibilities and Income Elasticities

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Scale flexibilities in inverse demand systems describe how marginal valuations change with expansions in the consumption bundle. Such effects clearly are related to income elasticities in direct demand systems. However, the connection is not so close as it first appears. We argue that the link between scale flexibilities and income elasticities is tight only if preferences are homothetic, a situation where neither measure is interesting, or if all elasticities of substitution are unitary. We make clear the relationship between the two measures in a coordinate system focusing on how marginal rates of substitution change with consumption scale and proportion.

Keywords: consumer demand; income elasticity; inverse demand; scale flexibility; D110

Journal Article.  0 words. 

Subjects: Household Behaviour and Family Economics

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