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Price Effects on Compound Commodities

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  • Junichi Minagawa
  • Thorsten Upmann

Abstract

We explore effects of simultaneous price changes for the demand of a group of goods, which we refer to as a compound commodity. Specifically, we consider unit and proportional cost components (e. g., taxes, transportation costs, etc.) imposed on the compound commodity. We find that there is a serious aggregation problem implying that the property of a downward-sloping demand curve does not generally hold for the demand of a compound commodity. Notably, both substitution effects of the unit cost and of the proportional cost for a compound commodity may be unambiguously opposed. Finally, we apply these results to commodity taxation.

Suggested Citation

  • Junichi Minagawa & Thorsten Upmann, 2016. "Price Effects on Compound Commodities," CESifo Working Paper Series 6060, CESifo.
    • Handle: RePEc:ces:ceswps:_6060
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    References listed on IDEAS

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    More about this item

    Keywords

    demand for a group of goods; compound commodity; unit and proportional costs; income and substitution effects; Slutsky equation; Giffen goods;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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