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Estimation of price elasticities from cross‐sectional data
Author(s) -
Chung Chanjin,
Dong Diansheng,
Schmit Todd M.,
Kaiser Harry M.,
Gould Brian W.
Publication year - 2005
Publication title -
agribusiness
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.57
H-Index - 43
eISSN - 1520-6297
pISSN - 0742-4477
DOI - 10.1002/agr.20065
Subject(s) - price elasticity of demand , elasticity (physics) , economics , econometrics , cross elasticity of demand , price elasticity of supply , econlit , wealth elasticity of demand , factor price , microeconomics , materials science , medline , political science , law , composite material
This study develops an empirical framework to estimate quality‐adjusted price elasticities from cross‐sectional data. The new approach shows the importance of properly adjusting for quality variation in both prices and quantities in demand analysis. When quality adjustment is concerned only with price, the unit value‐based elasticity tends to overstate the true price elasticity. However, when the quality adjustment is considered with both price and quantity, the direction of bias depends on the level of the true price elasticity. If the true price elasticity is unit elastic, there would be no bias. However, the price elasticity estimated with unit values would understate a true inelastic price elasticity while it would overstate a true elastic price elasticity. [EconLit citations: D120 Q110]. © 2005 Wiley Periodicals, Inc. Agribusiness 21: 565–584, 2005.