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- Title
Relationship between the Uncompensated Price Elasticity and the Income Elasticity of Demand under Conditions of Additive Preferences.
- Authors
Sabatelli, Lorenzo
- Abstract
Income and price elasticity of demand quantify the responsiveness of markets to changes in income and in prices, respectively. Under the assumptions of utility maximization and preference independence (additive preferences), mathematical relationships between income elasticity values and the uncompensated own and cross price elasticity of demand are here derived using the differential approach to demand analysis. Key parameters are: the elasticity of the marginal utility of income, and the average budget share. The proposed method can be used to forecast the direct and indirect impact of price changes and of financial instruments of policy using available estimates of the income elasticity of demand.
- Subjects
ELASTICITY (Economics); ECONOMIC demand; ADDITIVES; FINANCIAL instruments; MARGINAL utility
- Publication
PLoS ONE, 2016, Vol 11, Issue 3, p1
- ISSN
1932-6203
- Publication type
Article
- DOI
10.1371/journal.pone.0151390