Price Elasticities of Demand are Minus One-Half

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Abstract

As an empirical regularity for broad commodity groups, we show that price elasticities of demand are scattered around the value of minus one-half. We also show that this finding is not inconsistent with the utility-maximising theory of the consumer under the conditions of preference independence. When nothing is known about the price-sensitivity of a good, a reasonable first approximation to its price elasticity is thus minus one-half.
Original languageEnglish
PublisherUWA Business School
Publication statusPublished - 2006

Publication series

NameEconomics Discussion Papers
No.14
Volume6

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