Showing papers on "Demand curve published in 1975"

Technology, Prices, and the Derived Demand for Energy

Abstract: Industrial demand for energy is essentially a derived demand: the firm's demand for energy is an input is derived from demand for the firm's output. Inputs other than energy typically also enter the firm's production process. Since firms tend to choose that bundle of inputs which minimized the total cost of producing a giving level of output, the derived demand for inputs, including energy, depends on the level of output, the submitions possibilies among inputs allow by production technology, and the relative prices of all inputs.

The demand for electricity: a survey

Abstract: This paper presents a survey and critique of the econometric literature on the demand for electricity. Most of the focus is on residential demand, but the few studies analyzing commercial and industrial demand are also reviewed. Special attention is given to the singular features of electricity demand, the fact that electricity is purchased according to multipart decreasing block tariffs, the need to distinguish between demand in the short run and demand in the long run, etc. In particular it is noted that proper modeling of decreasing block tariffs requires inclusion of both a marginal and average price as predictors in the demand function. The paper concludes with some suggestions for future research.

Spatial Price Discrimination, Competition and Locational Effects

Abstract: Spatial price theory has typically assumed homogeneous gross demand curves among buyers who are dispersed over an economic landscape. Subtracting varying costs of distance to their locations yields a set of heterogeneous net demand curves. Any spatial monopolist subject to these conditions faces separable markets which are characterized by different effective demands. As a result price discrimination is feasible, and in theory straight-lined delivered price schedules of less than unit slope per unit cost of distance are customarily derived. But do spatial competitors ever discriminate (or appear to discriminate) over economic space? And if they do, what is the form of their delivered price schedules? Would their schedules also be linear given the same demand conditions that generate linear schedules for a discriminating monopolist? Without answering questions such as those raised above anti-trust regulations dealing with unfair price practices and, in particular, the determination of what is legal or illegal, ethical or not, cannot be readily accepted by economists. The present paper is designed to provide a basis for answering such questions by uncovering selected properties of spatial price discrimination under conditions of varying intensities of competition over an economic space. More generally, the paper is designed to determine the effect on prices of rival locations and the intensity of their competition. Sharp contrasts between spaceless and spatial price theory will thus be drawn, with competitive differences over the seller's trading area being revealed to generate differential discriminatory prices over the landscape. [Авторский текст]

A dynamic, nonstationary inventory problem for a price/quantity setting firm

Abstract: A dynamic and nonstationary model is formulated for a firm which attempts to minimize total expected costs over a finite planning horizon. The control variables are price and production. The price p and the demand ζ are linked through the relationship ζ = g(p) + η, where g(p) is the riskless demand curve and η is a random variable. The general model allows for proportional ordering costs, convex holding and stockout costs, downward sloping riskless demand curve, backlogging, partial backlogging, lost sales, partial spoilage of inventory, and two modes of collecting revenue. Sufficient conditions are developed for this problem to have an optimal policy which resembles the single critical number policy known from stochastic inventory theory. It is also shown what set of parameters will satisfy these sufficiency conditions.

Intermediate Microeconomics and Its Applications

Abstract: Part I: INTRODUCTION. 1. Economic Models. Appendix: Mathematics Used in Microeconomics. Part II: DEMAND. 2. Utility and Choice. 3. Demand Curves. Part III: UNCERTAINTY AND STRATEGY. 4. Uncertainty. 5. Game Theory. Part IV: PRODUCTION, COSTS, AND SUPPLY. 6. Production. 7. Costs. 8. Profit Maximization and Supply. Part V: PERFECT COMPETITION. 9. Perfect Competition in a Single Market. 10. General Equilibrium and Welfare. Part VI: MARKET POWER. 11. Monopoly. 12. Imperfect Competition. Part VII: INPUT MARKETS. 13. Pricing in Input Markets. Appendix: Labor Supply. 14. Capital and Time. Appendix: Compound Interest. Part VIII: MARKET FAILURES. 15. Asymmetric Information. 16. Externalities and Public Goods. 17. Behavioral Economics.

The Impact of Aggregate Demand on Prices

Abstract: DIFFERING IMPLICIT assumptions regarding the response of the aggregate price level to changes in aggregate demand underlie many of the most important disputes in the field of macroeconomics, both at the abstract level of theoretical discussion and at the practical level of policy recommendation. When aggregate demand shifts in either direction, so does the "market-clearing" aggregate price level at which output remains fixed. A "perfectly flexible" actual price level shifts instantaneously to the marketclearing level in response to a shift in demand, but an "imperfectly flexible" price level changes only gradually toward the market-clearing level, thus allowing real output to vary in the same direction as the demand shift during the transition to complete price adjustment. The resolution of several important issues depends on the speed of price adjustment: 1. Some have applied the theory of rational expectations to stabilization policy to conclude that the monetary authority cannot affect real output by systematic policy reactions if these depend in a regular way on past events and thus can be anticipated by economic agents.' This conclusion depends

Prices and Incomes in Linear Programming Models

Abstract: A procedure for representing competitive and noncompetitive market structures in linear programming (LP) models is presented. The specification of the objective function follows from the choice of market form to be incorporated in the model. Development of the function yields demand and expenditure equations and an LP tableau with separable demands. In the event of two or more products that are not separable in demand, the nonlinear demand set can be linearized directly by specification of activity vectors representing points on the demand surface and by incorporating an appropriate convex combination constraint. The specification of commodity demand structures incorporates one characteristic, which makes it particularly convenient for obtaining comparative statics solutions. The demand function for any commodity group can be rotated merely by an appropriate change in the constraint value of the convex combination inequality. A representation of international trade can be incorporated by adding commodity specific importing activities as additional production activities and adding exporting activities as additional selling activities. 21 references.

Competitive Firm and the Theory of Input Demand under Price Uncertainty: Comment

Abstract: In a recent paper Batra and Ullah (1974) investigate a competitive firm's demand for factors of production when all inputs are chosen before the output price is observed. They conclude (p. 547) that \"the risk-averse firm utilizes smaller quantities of inputs . . . than a firm operating under certainty\" and that \"the marginal and overall impacts of uncertainty need not be the same for input demand.\" In this note I show that the first of these conclusions is incorrect and then argue that the marginal and overall impacts of uncertainty are the same provided the firm's von Neumann-Morgenstern utility function exhibits decreasing absolute risk aversion. The model and notation I use are the same as in Batra and Ullah. From the first-order conditions Batra and Ullah correctly show (p. 541) that r < jufK(K, L) (1)

The Canadian Wheat Boom and Per Capita Income: New Estimates

Abstract: In a 1966 J.P.E. article, E. J. Chambers and D. F. Gordon (hereafter CG) measured the impact of prairie wheat expansion on per capita income growth in Canada for the "classic staple period" 1901-11. By applying a simple and ingenious general equilibrium model, they argued that the income gain could be approximated by the increases in prairie land rents and tariff revenue' generated by the wheat boom. The total, $53.4 million, was 2.43 percent of the 1911 national income. Since the increase in per capita from 1901 to 1911 was 23 percent, CG concluded that "it is highly misleading to regard the prosperity of this period as geared to wheat." 2 In this comment, I respecify the CG model and compute the effect of the wheat boom to have been nearly twice their estimate. This is particularly surprising because the contribution to per capita income growth, as I measure it, likely understates the true impact, whereas CG claim that their figure is an upper bound. CG base their model on two sectors: "wheat," interpreted to be all agricultural output on the prairies, and "gadgets," consisting of those manufacturing industries competing with foreign products. Applying the reasonable small-country assumption to Canada, CG regard the demand curves for both products and the supply curve of capital to be perfectly elastic. Since the gadget production function is assumed to be characterized by constant returns to scale and includes only labor and capital as factors, it follows that the demand curve for labor in that sector is perfectly elastic. Therefore, an upward shift in the labor demand curve of the wheat sector increases land rents but does not affect labor income.

Cost-Oriented Pricing: A Realistic Solution to a Complicated Problem:

Abstract: Most businessmen know that the optimum price is that at which marginal cost equals marginal revenue. At least, that is the optimal price if we are profit maximizers. But in practice, such a rule has nominal pragmatic value. First, it implies that we know the marginal cost and marginal revenue curves of the products we are offering. In many businesses, adequate cost data do not exist. This is particularly true when new products and the extension of existing products are concerned, and when the problems of overhead allocation and burdens are considered., To argue that such data should be available, or must be available, in order to reach informed decisions begs the point. The fact is that very often such data simply are not available when needed. A knowledge of the marginal revenue curve implies a knowledge of the demand curve. And if the typical firm has trouble obtaining adequate cost information, the problems associated with collecting adequate demand information are several times more complex. Finally, it is not clear that firms are, in fact, profit maximizers. By observation it is clear that many firms fail to follow policies consistent with profit maximization. Most firms set sales quotas or cost targets on departments or divisions. Salesmen are given sales quotas and rewarded on the basis of sales performance. Managers who are evaluated on profits are typically given target profit levels. They are rarely (if ever) rewarded on the basis of how close they come to the theoretical maximum level. Of course, the reason most firms fail to act as profit maximizers is that most firms are unable to do so. As suggested above, such action implies a knowledge of data that are simply not available to most businesses. The predominant pricing goal observed in American industry is that of profit satisfaction. That is, prices are set so that a satisfactory level of profit (or return on investment) is anticipated. Such a price is based almost solely on cost.

Consumer response to price and income changes

Abstract: The purpose of this paper is to show what can be learned about the reaction of Irish consumers to price and income changes by using the published time series data and the currentlyaccepted models of consumer behaviour. Two difficulties present themselves immediately. First, the data are relatively scarce. At the time of writing, there are some twenty annual observations of consumer expenditure and, while there is a fairly fine division in the tables of current price expenditure (which provide 15 categories), the tables of constant price expenditure reduce this to eight. Secondly, there is at the moment no generally accepted "best" model of consumer behaviour. Many are available, and each has its strengths and weaknesses. It is true that some can be rejected because their assumptions are unacceptable and some because they cannot be estimated; but having done this one cannot discover any one model which is clearly better than all others. The first difficulty cannot be overcome. With some effort, one might increase the number of consumption categories, but this would increase the number of parameters to be estimated in most models very considerably and it is doubtful if the length of the time series is sufficiently great to make it possible to estimate such an expanded system. The strategy adopted here in regard to the second difficulty is to estimate all the most plausible models. Any aspects of consumer behaviour which are consistent in all the results can be regarded as reasonably reliable, while the remainder will at least indicate areas of doubt. Further, it will be possible to discover how well each model fits the Irish data, and that may provide some further information about the nature of consumer response to price and income changes. The remainder of the paper is organised as follows:

Theory of the Firm Facing Uncertain Demand: Comment

Abstract: In a recent issue of this Review, Hayne Leland concludes that the risk-averse quantity setting firm will produce less under uncertainty conditions than it would under certainty, a finding that is consistent with that of other authors including John Lintner (1970). This conclusion is based in part on his assumed property of the stochastic demand curve, called the principle of increasing uncertainty (PIU).1 This paper suggests that the intuitively supported PIU (increases in expected total revenue are accompanied by increasing risk) is a special and unusual case. In what follows I adopt one of the behavioral modes specified by Leland and make the same equilibrium assumptions. It is demonstrated that the principle of increasing uncertainty does not hold for one of the most widely employed measures of risk in the economic and financial literature. Leland introduces uncertainty through the implicit demand relation

On the Indirect Productivity of Money

Abstract: The recent approach to the productivity of money in its medium-ofexchange function as it has been developed by authors like Brunner and Meltzer (1971) focuses on the amount of real resources allocated in the exchange activity of an economy; that is, in the purchase and sale of goods (commodities, assets, factors of production). The emergence of a money economy and a higher real quantity of money, respectively, increase the available amount of the "original" factors of production (capital, labor) for the proper production activity. Consequently, real money balances should be taken into account by the traditional production function. Either one treats them as a "third" factor of production as it is proposed by Mundell (1971, chap. 5) and Bailey (1971, pp. 54-56, 68-70), ascribing to money a "direct" productivity, or, as the present note suggests, they have only a "derived," "indirect" productivity, emphasizing the fact that money switches real resources from the exchange activity to the production activity. Even if both approaches may be considered as equivalent with respect to the result that money is productive, the latter constitutes a better analytical device because it reveals some new information on the individual's choice margin to hold money and on the specific shape of the demand curve for real money balances. Referring to a recent empirical study by Sinai and Stokes (1972) who show that, in a Cobb-Douglas production function, the presence of money is highly labor saving (the coefficient of capital services is hardly affected whereas the coefficient of labor services falls at about 20 percent, so the sum of the productive contributions of real balances plus labor is approximately equal to the coefficient of labor services in the production function without money), in what follows we shall assume that the amount of capital employed in the exchange activity is of a rather low magnitude, so we can neglect it. The production function of the economy can be written as

Theory of Demand

Abstract: The purpose of the theory of demand is to determine the various factors that affect demand. One often reads that the raison d’e tre of the theory of demand is the establishment of the law of demand’ (that the market demand is negatively related to the price) but this is misleading in that it concentrates on price as the sole determinant of demand, ceteris paribus.

The structural shift in the demand for money

Abstract: RECENTLY several articles have provided evidence that a structural shift occurred in the market for savings deposits during the early 1960's. Specifically, Modigliani [12] demonstrated that prior to 1962 the commercial bank time deposit rate did not affect the demand for nonbank deposits nor did nonbank rates affect the public's demand for time deposits at commercial banks. Bank and nonbank deposits apparently became strong substitutes only after 1961. Slovin [18] found that this shift in structure also characterized the deposit rate setting behavior at both bank and nonbank institutions. The explanation for this structural shift may be that the- low level of Regulation Q ceilings prior to 1962 may have seriously curtailed the ability of commercial banks to compete for savings deposits during the 1950's. During 1962 Regulation Q ceiling rates on time deposits were raised sharply.1 This triggered a substantial rise in commercial bank time deposit yields and, as a result, the differential between the deposit rate at savings and loan associations, RSL, and the time deposit rate, RTP, narrowed dramatically. The differential between these rates is graphed in Figure 1. Overall, this evidence suggests that the pattern of substitution between various types of liquid liabilities has changed over the postwar period. During the 1950's, interest sensitive funds were apparently diverted into nonbank intermediaries instead of commercial banks. The substantial rise in Regulation Q ceilings in 1962, however, significantly enhanced the ability of commercial banks to compete for deposits. It is our contention that these financial developments in the early 1960's induced a shift in the structure of the public's demand for money. Our approach is to disaggregate the demand for money into the demand for demand deposits and the demand for currency. First, we consider a standard demand for money specification and investigate whether there has been a structural shift in the pattern of substitution between money and near monies. Second, we reestimate the money demand function in order to incorporate the effect of developments in the savings market.

The Social Profitability of Subsidies for Agricultural Exports: The Case of Ghana

Abstract: A framework is developed to estimate the social profitability of export subsidies. The approach indicates whether a definite gain has been obtained even though the new equilibrium is not a first best. A method is provided for measuring consumer surplus when the demand curve shifts as a consequence of the policy. The technique is applied to selected agricultural exports from Ghana. It is found that while the subsidies would be profitable there would also be a heavy fiscal burden associated with the subsidies even though the subsidy scheme may be partly self-financing.

An Econometric Study of the Demand for Fertilizers in Pakistan

Abstract: An empirical study of the demand for fertilizers in Pakistan is important for at least two reasons First, we can identify the various factors responsible for the determination of demand This will obviously depend to a large extent on the arguments we include in the demand function and the mathematical specification of the model Nevertheless, one can obtain a rough idea of the importance of the various factors in the total demand for fertilizers Second, a study of the demand side will enable us to obtain some estimates of the price elasticity of demand Knowledge of price elasticity is extremely essential from the government policy point of view because the sale of fertilizers in Pakistan has been subsidized, and it is, therefore, essential to know the degree of respon-siveness of fertilizer demand to price changes Despite the crucial importance for policy measures, hardly any econome¬tric study of the demand for fertilizers has been carried out in Pakistan To the best of my knowledge, PL Leonard [5] is the only one who has attempted to carry out such a study for Pakistan The aim of this paper is, therefore, to quantify the degree of importance of the various factors in the fertilizer demand of Pakistan

Treasury bill auction procedures: an empirical investigation: comment

Abstract: IN A RECENT article in this Journal S. Bolten attempted a quantitative estimate of the increase in demand for 91-day Treasury bills that would be required to offset the loss of discriminatory profits should the Treasury adopt a nondiscriminatory auction procedure.' He did so by estimating a demand function for Treasury bills, and then calculating the increase in revenue that would be produced by hypothetical increases (1% to 20%) in demand for Treasury bills under a non-discriminatory auction. Bolten found that an increase in demand under a non-discriminatory auction of as little as 1% would yield a higher revenue than the present procedure, assuming that the volume of noncompetitive bids remained unchanged. The central element in Bolten's estimates is the price elasticity of the demand for Treasury bills; the greater the elasticity, the less "consumer surplus" is available to be captured by a discriminatory auction procedure. The term "price elasticity," however, is used guardedly. Bids in Treasury bill auctions do not represent a true willingness to buy at various prices, but rather a combination of willingness to buy and an evaluation of the probability of acquiring bills at a price less than one is willing to pay. Changes in the degree of price uncertainty might be expected to alter significantly the "price elasticity" revealed in the schedule of bids submitted in Treasury bill auctions, and hence the level of the Treasury's profits from discrimination. Bolten considered price uncertainty only with respect to the level of demand, not the elasticity of demand. Since he used data only for 1968, the elasticity estimates that he obtained are only appropriate for the level of uncertainty prevailing during that year. An empirical indication of the importance of price uncertainty in the determination of the price elasticity of demand for Treasury bills, and hence of the level of the Treasury's discriminatory profits, may be found by examining the yearly average spread between the average price and the stop-out price (low bid accepted) for 21 years, 1952 through 1972. For a given quantity of Treasury bills, the spread would vary inversely with the "price elasticity." As a proxy for price uncertainty, the yearly averages of week to week price changes in bill auctions were used as an independent variable. In a simple regression, the proportion of the variance of the spread explained by the average quantity of bills (r2) was only .145. The addition of the price uncertainty proxy variable in a multiple regression raised the level of explanation to .801, a value significant at the 1% level of confidence. As. can be seen in the data of the appendix, the average spread (expressed in thousandths of the bid price) varies quite markedly, from 2.750 in 1965, to 7.500 in 1968 and 10.231 in 1971. Bolten's estimate of the necessary increase in demand for Treasury bills in order to provide more revenue in a nondiscriminatory auction than a discriminatory auction, being based solely upon

Equilibrium in Stochastic Economic Models

Abstract: Publisher Summary This chapter discusses the equilibrium in stochastic economic models. Much of the analytical work in economic theory is devoted to the characterization of some sort of an equilibrium or a steady state. An equilibrium is typically a state of the system satisfying some basic consistency conditions that make it self-perpetuating once it is attained. Perhaps the simplest example is that of an equilibrium in a single market in which demand and supply of the commodity are functions of the price of that commodity alone. An equilibrium price vector has the property that planned demand equals planned supply. In particular, if the prevailing market price is an equilibrium price, there will be no pressures for bringing about a change in the price. The chapter discusses briefly some conceptual problems in defining an equilibrium or a steady state in stochastic models in economics. A dynamic model of resource allocation under uncertainty that has direct relevance to some practical planning problems is analyzed. In this model, the planner follows the classical rule of price-adjustment by raising the price when there is excess demand and lowering the price when there is excess supply.