Showing papers on "Demand curve published in 1993"

New and Old Keynesians

Abstract: The purpose of this paper is to describe one strand of New Keynesian literature which explores how increased flexibility of wages and prices might exacerbate the economy's downturn, and to contrast it with other strands of New Keynesian literature. This strand of literature holds that even if wages and prices were perfectly flexible, output and employment would be highly volatile. It sees the economy as amplifying the shocks that it experiences and making their effects persist. It identifies incomplete contracts, and, in particular, imperfect indexing, as central market failures, and it attempts both to explain the causes and consequences of these market failures. The models described here contain three basic ingredients: risk-averse firms; a credit allocation mechanism in which credit-rationing, risk-averse banks play a central role; and new labor market theories, including efficiency wages and insider-outsider models. These building blocks should help to explain how price flexibility contributes to macroeconomic fluctuations and to unemployment. In particular, the first two building blocks will explain why small shocks to the economy can give rise to large changes in output, while the new labor market theories will explain why those changes in output (with their associated changes in the demand curve for labor) result in unemployment.

A survey of energy demand elasticities in support of the development of the NEMS

Abstract: With NEMS, there has been increased interest in modeling energy markets and a resurgent interest in energy elasticities of demand. Since such elasticities are often a convenient way to summarize the responsiveness of demand to such things as own prices, cross prices, income, or other relevant variables, a substantial amount of resources have been devoted to estimating demand elasticities, at various levels of aggregation using a variety of models. The goal of this project is to survey these works for the U.S. on energy demand elasticities, do a critical analysis of them, attempt to come up with summary elasticities, discuss the scope and breadth of the work that has been done, and make suggestions for further research.

Business demand projection system and method

Abstract: A business demand based control system and method stores past business demand data during past time intervals for use with other data to compute business demands in such manner that the past business demand data is used to project the business demands in current and near-future time intervals. The system measures and stores the business demand data for a plurality of time intervals and a plurality of products or tasks, and projects the business demand for a plurality of products or tasks for near-future time intervals using percentage based demand curves. The system allows the creation of a number of demand curves for the items to determine near future demand, using defined functions and variables. Business demand projections for current and near-future time intervals are revised for a plurality of business items in response to variances in actual business demand data in time intervals just prior to the current time interval.

Do Supply Curves Slope Up

Abstract: This paper examines the short-run responses of price and quantity to exogenous demand shocks for disaggregated U. S. manufacturing industries, using prior information on input-output linkages to identify industries whose fluctuations are likely to function as approximately exogenous demand shocks for other industries. I find that demand shocks induce positive covariation between price and quantity for 16 out of 26 sample industries, controlling for observable cost shift variables. When sample industries are pooled, I estimate that a demand shock which initially raises industry output by 1 percent generates a price increase of 0.182 percent within one year. I find that input-output instruments detect upward sloping supply curves more readily than least squares or other commonly used demand-shift instruments.

The demand for wagering on state- operated lotto games

Abstract: A number of studies have at- tempted to estimate demand functions for state-operated lottery games, usually with quarter/y or annual data. A few in- clude the price of a lottery bet as an in- dependent variable, with generally unsat- isfactory results. This is because the price of a lottery bet will be roughly constant over quarterly or annual time intervals. Focusing on one type of lottery game (lottos), we show that if the demand for betting on lottos is estimated on a draw- ing-by-drawing basis, a price variable can be included on the right-hand side. Doing so allows us to estimate a true demand function and to compute price elasticities. As a result, we can evaluate the extent to which state lottery agencies have struc- tured their lotto games so as to maximize tax revenues.

Irreversible Price-Induced Efficiency Improvements: Theory and Empirical Application to Road Transportation

Abstract: Energy demand since 1986 seems inconsistent with the notion of constant income and price elasticities reported in the literature. Energy demand growth remained sluggish despite the simultaneous substantial reduction in real fuel costs and increases in real income. This investigation differentiates, as it were, two different price effects that should explain this apparent asymmetry in energy demand. The first effect is embedded in the technical efficiency and therefore largely irreversible. The second effect revolves around consumers` decisions and hence is reversible. This dichotomy of the price effect provides a suitable framework to study energy demand (in this instance, road transport). Moreover, the projections and policy recommendations following from this framework differ from the standard symmetric specification. Moderate price increases will affect consumers` behaviour, while only sufficiently high gasoline prices will trigger further efficiency improvements. The present low growth rates of energy demand mask a much higher growth at the service level, therefore energy demand growth may accelerate as these efficiency gains die out (if price levels or price expectations remain low). 19 refs., 9 figs., 4 tabs.

Toward an economic theory of fashion

Abstract: Strong as is the desire for variety, it is weak compared with the desire for distinction: a feeling which if we consider its universality, and its constancy, that it affects all men at all times, that it comes with us from the cradle and never leaves us until we go to the grave, may be pronounced to be the most powerful of human passions. Nassau Senior(1) With the greater part of rich people, the chief enjoyment of riches consists in the parade of riches, which in their eyes is never so complete as when they appear to possess those decisive marks of opulence which nobody can possess but themselves. Adam Smith(2) I. INTRODUCTION Positively sloped "demand" curves are used in marketing textbooks to explain the pricing of fashion merchandise.(3) "Snob" or "prestige" effects are alluded to in support of the claim that price increases can lead to an increase in the quantity demanded. In the tenth edition of their text, E. Jerome McCarthy and William D. Perreault [1990] offer a demand curve with a positively sloped segment. They explain: Prestige pricing is setting a rather high price to suggest high quality or high status. Some target customers want the "best," so they will buy at a high price. But if the price seems "cheap," they worry about quality and don't buy. (P. 506; footnote omitted, emphasis in the original.) In another text, Ralph M. Gaedeke and Dennis Tootelian [1983] also discuss a positively sloped demand curve: Some products do not have the traditional downward sloping demand curve previously described, but a more curved slope, illustrated in Exhibit 13-6 [demand curve with upward sloping portion--not shown]. This reflects the real impact of price as a part of the product's value. Quite obviously, as a product's price rises above [P.sub.0], demand will begin to drop as some consumers will simply be unable to afford the product. However, that decline is rather slow until very high prices are reached. But demand also begins to drop at prices below [P.sub.0], showing that part of the reason for owning the product lies in its high price--it has prestige value. Economists react by asserting that marketing explanations are ad hoc, devoid of economic content. Conversely, marketers say that economic models are naive and incapable of explaining the marketing of fashion goods. As economists, we have a bias towards economic explanations, but these explanations are incomplete and not highly valued by the market. In stark contrast, the advice of professional marketers (that economists contend is muddled or worse) is amply rewarded in consulting work. Is there a market failure in the consulting market, or does marketing provide an insight that economics lacks? We start with the premise that the intuition behind marketing explanations, that people desire prestige, has validity. This notion can be incorporated into economic theory using Kelvin Lancaster's [1971] notion that when a purchase is made, what is bought is a bundle of services or characteristics. The salient feature of a fashion good is its ability to confer prestige or status.(4) The argument is straightforward: There is a sociobiological basis for status-seeking behavior. Status-seeking is an evolved trait that is innate to humans as well as to many other animals. Given the pervasiveness of status-seeking, human cultures have developed effective signals of status--fashion being just one. We incorporate the status yielding nature of fashion goods into a standard demand model by assuming that the value consumers attach to a fashion good depends on the stock held by other consumers. This interdependency among consumers allows us to explain the upward sloping constructs (labeled demand curves) that populate marketing texts. Our model has downward sloping demand curves throughout, but (because of the interdependencies) generates cyclical price behavior that can be misconstrued as aberrant (positively sloped) demand functions. …

The imperfect pricee reversibility of world oil demand

Abstract: This paper examines the price-reversibility of world oil demand, using price decomposition methods employed previously on other energy demand data. We conclude that the reductions in world oil demand following the oil price increases of the 1970s will not be completely reversed by the price cuts of the 1980s. The response to price cuts in the 1980s is perhaps only one-fifth that for price increases in the 1970s. This has dramatic implications for projections of oil demand, especially under low-price assumptions. We also consider the effect on demand of a price recovery (sub-maximum increase) in the 1990s-due either to OPEC or to a carbon tax-specifically whether the effects would be as large as for the price increases of the 1970s or only as large as the smaller demand reversals of the 1980s. On this the results are uncertain, but a tentative conclusion is that the response to a price recovery would lie midway between the small response to price cuts and the larger response to increases in the maximum historical price. Finally, We demonstrate two implications of wrongly assuming that demand is perfectly price-reversible. First, such an assumption will grossly overestimate the demand response to price declines of the 1980s. Secondly, and somewhat surprisingly, it causes an underestimate of the effect of income growth on future demand.

The Stability of the M2 Demand Function: Evidence from an Error-Correction Model

Abstract: This note presents an error-correction model of M2 demand. The Chow test indicates that the M2 demand function is stable over the sample period 1953Q1 to 1991Q2. Copyright 1993 by Ohio State University Press.

The demand for money in the netherlands and the other ec countries

Abstract: This paper presents an analysis of the demand for money in each of the single EC countries, using a uniform data set and a common economic framework. The analysis differs from other studies in two major respects. Firstly, a countrywise set-up is chosen instead of an analysis of EC aggregates and secondly, three monetary aggregates —M1, M2, andM3 — are analysed. This approach does justice to possible differences in money demand behaviour in the various countries and avoids the aggregation problem. The estimated money demand equations belong to the class of error-correction models and offer a tool for interpreting differences in monetary developments in the single EC countries. The estimation results show that in most member states the price elasticities are slightly below 1. Other remarkable results are that the demand for money in the southern EC countries is less sensitive to changes in the interest rates and the inflation rate than in the northern countries and that the demand for broadly defined money is more stable than the demand for narrow money. Stability also seems to depend on the size of the country. By weighting the estimates for the individual countries, elasticities of the demand for money of the EC as a whole are obtained, which have a plausible order of magnitude.

New review of australian travel demand elasticities

Abstract: Travel demand elasticity is a measure of the responsiveness of travel demand to changes in variables such as price, income and service level Knowledge of demand elasticities provides a sound basis for developing price-based travel demand management measures This report reviews and summarises information on elasticities that were empirically determined in Australia The review includes elasticities of petrol consumption and traffic level with respect to petrol price, those of public transport demand with respect to fare changes and petrol price increases, and those of freight demand with respect to road freight costs Petrol price was found to be more effective, in the long run, in reducing fuel consumption (elasticity = -055) than in reducing travel demand (elasticity = -026) The average own-price, short-run elasticity was 029 for bus and -035 for rail; cross-elasticities were about 010 with respect to petrol price or fare changes The service level of public transport was about three times as effective as price in shifting car drivers to transit users (a) The ISBN of the microfiche version is 0-86910-615-5

Impact of pricing structure selectivity on urban water demand

Abstract: I. INTRODUCTION Interest in demand management policies has intensified as the demand for residential water has grown in the United States. While municipal utilities historically have emphasized education and conservation programs, they recently have begun considering pricing strategies. As the emphasis on conservation programs has increased, many cities have begun using an increasing block rate structure rather than the traditional decreasing one. Many analysts strongly believe that implementing an increasing block rate structure will encourage conservation. However, empirical confirmation currently does not exist. The analysis here estimates U.S. residential water demand using the 1984 American Water Works Association (AWWA) survey of several hundred of the largest U.S. water utilities. The analysis closely relates the impact of changes in pricing structures to consumer response to average and to marginal prices. In addition, the analysis assumes that a municipal utility's selection of a block structure is not a random event and therefore uses a logit selection model to provide a better understanding of different pricing structures' potential impacts on water demand. This study (i) provides an empirical analysis of the differences in price elasticities of demand across block structures, (ii) uses the water demand estimates to correct for selectivity bias and to test whether consumers respond to average prices or to marginal prices, and (iii) provides an explicit analysis of the factors that influence a utility's selection of rate structure. II. BACKGROUND Nieswiadomy (1992) reviews the primary issues associated with estimating water demand. The analysis here draws heavily from Shin (1985) and Nieswiadomy (1992) for the water demand function model but concentrates on how municipal utilities select pricing block structures and how the selection creates potential bias. Utility officials must understand the key factors that determine a water demand management program's effectiveness. Interest in conservation-oriented rate schedules has grown tremen-dously in the past decade. Utility managers commonly adopt increasing block structures in the belief that they are conservation-oriented. Wichelns' (1991) non-econometric analysis of marginal pricing's impact in irrigated agriculture associates increasing blocks with reduction in water use per acre. However, no available econometric study demonstrates that an increasing block structure indeed is conservation-oriented. One first must formulate a testable hypothesis--for example, that consumers react differently under an increasing block regime than under a decreasing one. If an increasing block structure indeed is conservation-oriented, one would expect the price elasticity to be greater (in absolute value) under an increasing block structure. To test the hypothesis, one might randomly choose cities, apply different treatments (that is, increasing, uniform, or decreasing block structures), and observe the effects. However, utility managers do not randomly apply block structures. Managers base the choice on their customers' interests. Managers who are more likely to choose what they believe to be a conservation-oriented rate schedule may be systematically more likely to engage in conservation-oriented behavior. Thus, the estimated effectiveness of an increasing rate structure may be exaggerated. This problem is a "selectivity bias." Cameron and Wright (1990) study selectivity bias for retrofit activity in Los Angeles. Aigner and Ghali (1989) also find selectivity bias in residential electricity time-of-use pricing experiments. Knowing that a selectivity bias may exist, one must model the utility's process of selecting a rate schedule. Raftelis (1988) points out that each utility's goal is to select a rate structure that considers the cost-of-service and is responsive to community objectives. These objectives include financial sufficiency, conservation, equity, implementation, compliance with legal authorities, effect on customer classes, and long-term stability. …

A Dynamic Model of Product Quality and Pricing Decisions on Sales Response

Abstract: This paper presents a dynamic model that examines the influence of price and customer perception of product quality on the sales rate of a firm producing durable goods. The sales rate of the firm is modeled as a function of its price, average product life, perceived quality, and market potential. Specifically, the model considers: (1) the process by which perceived quality is determined by including the effects of the average life of a product and quality weighted units in the market; (2) the time delay in the influence of actual quality on perceived quality; (3) the process by which demand (i.e., potential sales) is converted to realized sales due to the effects of price and perceived quality; and (4) the saturation effect and associated non-linearity in the demand function. The model presented is a reformulation and extension of the model originally proposed by Bass [2]. The validity of the model is tested using historical data on For Mustang.

Women and the Demand for Alcohol: Estimating Participation and Consumption

Abstract: Studying the demand for alcohol is important for at least two major reasons. First, taxes on sales of alcoholic beverages provide substantial revenue to the government, accounting for over $9.5 billion in 1987. How this revenue stream is altered by changes in income or the population's demographic structure is an important issue. Secondly, and perhaps of more significance for this study, are the social and health implications of alcohol consumption. In particular, assessing the demand for alcohol by females of varying characteristics is important because they appear to be at more health risk than males: witness the labels warning women of the dangers of alcohol consumption during pregnancy. Also, since the early 1980s, women have been subject to an intense advertising campaign by the liquor industry (Cavanagh and Clairmonte 1985). The primary goal is to quantify the relationship between a woman's socioeconomic characteristics and decisions to drink and how much to consume. To accomplish this goal, the authors specify several theoretical models and estimate their statistical counterparts. Unlike many goods, a substantial number of women say they do not consume alcoholic beverages. Deciding to consume alcohol, much like the decision to smoke, is not only an economic decision but is also influenced by health and social considerations. Consequently, many women would not consume alcohol even if their income rose substantially or the price dropped to zero. This phenomenon raises the question of whether or not nondrinkers should be excluded from the demand curve for alcohol, such as Pomelli and Heien (1991) do in their study of wine demand. Conversely, it is also possible that many women who are currently nondrinkers, as those that are not drinking because they are pregnant, lactating, or have low incomes, will become consumers at a later date. In this case excluding nondrinkers would result in inefficient estimation of the demand curve's parameters. Another issue potentially important for modeling the consumption of alcohol is the separation of the decision to drink from the decision of how much to consume. Separating the two decisions is especially desirable if one views the decision to drink as a form of social behavior and related to factors like the prestige or stigma of drinking among different social groups, and the decision of how much to drink as a more private or individual decision based upon the usual economic variables. Most demand studies use the Tobit estimator which implies that both decisions are influenced by the same variables and in the same way. In this study, double-hurdle models that allow separation of the two decisions are employed. The following section briefly develops several theoretical economic models which are underpinnings for the statistical models described in the third section. The fourth section motivates the specification of the empirical models and describes the data. This is followed by a discussion of empirical results and conclusions. THEORETICAL MODELS In standard utility theory, everyone is assumed to be a potential consumer of all goods, but for some commodities, such as alcohol, this may not be true. That is, at all price and/or income levels some people cannot be induced to use alcoholic beverages. Pudney (1989) proposes modeling this situation using discrete random preference regimes. This approach assumes that drinkers have a different preference structure than nondrinkers. Thus, zero observations reflect the decision not to drink and only drinkers determine the parameters of the alcohol demand curve. A Heckman model, described in the next section, is an appropriate statistical model for implementing this theoretical approach (Heckman 1979). Alternatively, one can view consumers as evaluating their utility functions with and without alcoholic beverages and then determining whether or not to drink. This scenario is plausible if certain factors, as the prestige or stigma of drinking among different social groups, relate directly to the qualitative distinction between drinking and not drinking and are independent of the amount consumed. …

Modelling money demand in open economies over the modern floating rate period

Abstract: The role of open economy factors in influencing domestic money demand in major industrial countries over the modern floating rate period is examined. The theoretial model for the empirical analysis is derived from a general two-country portfolio balance framework that determines the demand for domestic and foreign monetary and non-monetary assets in each country. The ECM estimates indicate that capital mobility plays an important role in the money demand function in all seven counteries considered. Currency substitution, in contrast, is not an important phenomenon.

Bounding the welfare effects of third-degree price discrimination

Abstract: Under Pigouvian third-degree price discrimination, a profit-maximizing monopolist typically charges different groups of customers different prices (resale between groups is assumed to be impossible). These differences in price entail a loss of efficiency because marginal valuations of the output are not equal across buyers. The net welfare effect of allowing price discrimination is ambiguous though, because the total output under discrimination may exceed that under uniform pricing. Nevertheless, under quite general conditions, third-degree price discrimination by a monopolist can increase (static) welfare only if total output is greater under discriminatory pricing than under uniform pricing (Richard Schmalensee, 1981; Hal R. Varian, 1985; Marius Schwartz, 1990). Although there has been much analysis of whether price discrimination raises or lowers total output or welfare, the size of these effects has remained largely unexplored. Varian (1985) compares discriminatory pricing to uniform pricing for a monopolist and provides some bounds for the change in welfare in terms of market prices and outputs; but these relationships give little sense of the relative size of welfare changes resulting from third-degree price discrimination. I address this issue by asking what can be said about the ratio Wd/ Wu, where Wd and Wu denote welfare under discriminatory and uniform pricing, respectively (welfare is measured as the sum of producer surplus and Marshallian consumer surplus). Section I provides two examples showing that this ratio can range from zero to infinity. In these examples, all markets are served under uniform pricing, and demand in one of the markets is strictly convex. Considering a two-market model in which a monopolist with constant marginal cost serves two independent markets under uniform pricing, I show in Section III that if demands in both markets are concave, then Wd/ W, is bounded below by 2. (The assumptions of constant marginal cost and independent demands allow producer surplus and consumer surplus to be identified separately for each market. Separability across markets is central to the approach taken in this paper.) Following Joan Robinson (1933), I call a market "strong" ("weak") if the discriminatory price in that market is at least as great as (no greater than) the profit-maximizing uniform price. Surprisingly, the key to bounding Wd/ WU is that the demand function in the weak market be concave. If one market is strong, the other is weak, and demand in the weak market is concave, then Wd/ W' can be bounded above by 2.5 (or even 1.75 or 1.6 with additional assumptions on the demand functions). These bounds arise for several reasons. First, the monopolist's profit under uniform pricing must be at least as large as the profit in the weak market under discrimination. Moreover, if at all prices demand in the strong market is as great as in the weak market, then profit under uniform pricing must be at least twice as great as profit in the weak market under discrimination (otherwise the monopolist could do better by charging the monopoly price for the weak market). Second, this relationship between profits in the two markets is useful in bounding welfare because welfare in each market can be related to profit in that market. Section II shows that if demand is con* Department of Economics and A. B. Freeman School of Business, Tulane University, New Orleans, LA 70118. I thank Marius Schwartz and two anonymous referees for their comments on earlier drafts of this paper.

Duopoly signal jamming

Abstract: This paper examines a repeated duopoly market with heterogeneous outputs. Firms have (common) prior beliefs over the values of an unknown parameter of each firm's demand curve. Firms cannot observe rivals' quantities, but can observe market prices, which are subject to random disturbances and hence provide noisy information that firms use to update their beliefs concerning the unknown parameters' values. Each firm can potentially signal jam, or strategically vary its output level in order to manipulate the distribution of likely market prices and hence the likely inferences drawn by the opponent. We find that the opportunity to signal-jam introduces two conflicting effects, arising out of the desire to manipulate expectations concerning each of the two demand curves. Depending upon the relative magnitudes of these two effects, signal-jamming may lead firms to either increase or decrease period-one quantities. If the firms are symmetric, then the opportunity to signal jam induces both firms to increase output in order to induce their rival to conclude that demand is unfavorable. However, if the firms believe almost surely that one of the possible parameter values is true for firm 2's demand curve (for example), then firm 1 may signal-jam by producing less output.

The Sources of the U.S. Money Demand Instability

Abstract: The structural stability of money demand relations has been the issue of a substantial number of empirical studies. In most studies for the U.S. structural breaks were found in the 1970s and the 1980s. In the present study a money demand function is specified in error-correction-form which involves real M 1, real GNP, the deflator and a short-term interest rate. Using flexible least squares it is shown for the U.S. that the long-run coefficients of M 1, GNP and the interest rate are relatively stable over a period of more than 30 years while the deflator does not enter the relation. The instability of the relation is mainly due to changes in the short-term dynamics.

Effect of Thermal Improvements in Housing on Residential Energy Demand

Abstract: The residential sector accounts for approximately one-fifth of U.S. energy consumption. Home heating is the biggest user among energy using household activities. Although public concern about energy conservation has abated, there remains a continuing longrun interest in energy conservation. Households can use two strategies to conserve energy used in home heating. One is simply to lower the room temperature. This strategy substitutes warmth for other consumption goods in the short run. A second strategy is to improve the efficiency of heat production within the house by making investments such as adding insulation, weatherstripping, storm windows, or replacing an inefficient furnace. This latter strategy results in the possibility of achieving a given room temperature with less energy. Thus, it can be thought of as input substitution in the production of warmth. It is the substitution of housing capital for fuel. Rising prices of energy coupled with favorable tax treatment of residential conservation investments resulted in considerable input substitution during the late 1970s and early 1980s. For example, in 1981 3.4 million households installed roof insulation, 2.0 million households installed wall insulation, and 5.0 million households added storm windows or storm doors (U.S. Bureau of the Census 1982). The impact these conservation investments have in terms of reduced fuel requirements to achieve a given level of warmth is important for consumers to know when deciding whether to make these investments. Engineers have estimated this reduction by observing the impact of energy conserving modifications on model homes (Delene and Gaston 1976; Hutchins and Hirst 1978; Moyers 1971; O'Neal, Corum, and Jones 1981). However, this technique does not recognize the role conservation investments play in the behavior of households. The introduction of energy conserving modifications to a house serves to reduce the marginal price per unit of warmth. In the face of lower per unit warmth, households may increase their demand for warmth, offsetting the reduction in fuel demand. This implies that energy conserving modifications may impact energy demand less than engineering computations suggest. Similarly in an examination of demand for gasoline and automobile fuel efficiency, both inputs impact the demand for miles driven (Blair, Koserman, and Topel 1984; Mayo and Mathis 1988). These studies provide evidence that some benefits from increased fuel efficiency are taken in more miles driven. Hence, demand for gasoline does not fall as much as predicted. Economists have estimated residential demand for energy used in home heating taking into account the thermal characteristics of the house (Neels 1981; Scott 1980). But, with a couple of exceptions (Khazzoom 1986), economists have not generally treated energy for home heating as an input demand derived from the demand for home warmth.(1) As a result economists have not specified the demand functions in a way which takes into account what is known by engineers about heat loss. In this paper the authors treat demand for household energy used in home heating as a derived input demand, using a heat loss function to represent home warmth production. The authors estimate this demand function and compute energy savings and dollar savings, under the 1980-1981 price regime, associated with conservation investment. These savings calculations incorporate changes in the demand for home warmth resulting from reductions in home warmth prices due to the investments themselves. THEORETICAL CONSIDERATIONS The economic model used is the standard utility-maximizing model. Household utility, V, is a function of home warmth, W, and other goods, G, and is conditional on the demographic characteristics of the household, D. Home warmth is produced by using fuel for home heating, F, given the thermal characteristics of the house itself, C, and the outside temperature, T. …

The Functional Form of Import Demand: The Case of UK Motor Vehicle Imports, 1980‐90

Abstract: In the absence of any theoretical guidance, a solution to the question of what is the appropriate functional form for an import demand model can only be found empirically. Examines this question in the context of UK motor vehicle imports by applying a range of tests of functional form to two, alternatively specified, import demand models: the “traditional” price‐income model incorporating the popular but restrictive partial adjustment mechanism and a cost‐expenditure model that employs a less restrictive lag structure. Finds, principally that the commonly imposed linear or log‐linear functional forms cannot be rejected in relation to the price‐income specification, but there is some evidence that neither functional form may be appropriate in relation to the theoretically sounder cost‐expenditure model of import demand.

Demand elasticities: a comment

Abstract: This note considers the possibility of 'non-symmetric' or 'irreversible' price effects or 'hysteresis' in the transport demand relationship. The hysteresis hypothesis proposes that consumers, instead of responding similarly to rising and falling prices as is traditionally assumed, respond in a more complex manner. This response depends on the direction and size of previous price changes, and indeed on previous price history. Recent attempts to test the hypothesis include two studies of specific interest to the transport sector, concerned with estimates of the long-run price elasticity of fuel consumption. The results of these studies are presented in a table. Although the models used there may be oversimplified, they show that the response to prices is far more complex than would be predicted by traditional demand models. The author concludes that there will be a better basis for understanding the past and anticipating the future, by recognising that demand relationships and elasticities are the result of historical processes.

Rent-seeking and the two-track price system in China

Abstract: A simple general equilibrium model is specified to analyse the impact on the Chinese economy of the introduction of a two-track price system on to a centrally-planned economy. It is shown that national income will rise as a result together with a fall in the costs associated with rent-seeking. Some estimates of welfare gains and costs of rent-seeking are provided for seven commodities within a partial equilibrium framework. They are shown to be dependent on the price elasticities of demand and supply. The latter determine the ratio of plan to market prices and the share of plan in total output.

Experimental consumption for a general class of disturbance densities

Abstract: Publisher Summary This chapter discusses the effect of experimental consumption on the decision of the consumer. It presents a comparison of the optimal decision of the learning consumer and the optimal decision of the experimenting consumer. The use of endogenous data as the basis for updating subjective beliefs about an unknown structural parameter has been explored in papers by Prescott and by Grossman, Kihlstrom, and Mirman (GKM). Prescott deals with a macroeconomic model in which a controller tries to obtain information about an unobservable structural parameter governing the macroeconomic system. GKM deals with two applications, a consumer being the first, who purchases a commodity having an unknown effect on his and the second being a monopolist, who varies either price or output to obtain profits while trying to learn about an unknown structural parameter of the market demand curve.

Public transport services under market arrangements, part I: A model of competition between independent operators

Abstract: A model of competition between public transport services operating on a single route is developed and its properties explored analytically and numerically. The passenger demand function incorporates both substitution between services, expressed through a multinomial logit model, and elastic demand for the public transport market as a whole. Each operator is assumed to maximize its net revenue. Expressions are derived for the Nash-Cournot equilibrium fares and frequencies, which determine the resultant profits to suppliers and consumer benefits to users. The sensitivity of the equilibrium configurations to changes in the parameters characterizing the demand for and cost of service provision is explored in a series of numerical studies. The equilibrium analysis allows explicit conclusions to be drawn about the determinants of market concentration and the emergence of monopolies.