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Elasticities under two-stage budgeting

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  • Zeelenberg, Kees

Abstract

Under two-stage budgeting, the consumer allocates first his income to groups of goods and then for each group the expenditure to the goods that belong to the group. This paper derives expressions that relate the price and income elasticities and the elasticities of substitution of the demand for groups to the corresponding elasticities of the demand for groups and those of the within-group demand for goods. In particular, it is shown that the elasticity of substitution between two goods from different groups is equal to the elasticity of substitution between the groups, modified for within-group income effects.

Suggested Citation

  • Zeelenberg, Kees, 1986. "Elasticities under two-stage budgeting," MPRA Paper 89262, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:89262
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    File URL: https://mpra.ub.uni-muenchen.de/89262/1/MPRA_paper_89262.pdf
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    References listed on IDEAS

    as
    1. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, October.
    2. Keller, Wouter J., 1976. "A nested CES-type utility function and its demand and price-index functions," European Economic Review, Elsevier, vol. 7(2), pages 175-186, February.
    3. Blackorby, Charles & Boyce, Richard & Russell, R Robert, 1978. "Estimation of Demand Systems Generated by the Gorman Polar Form: A Generalization of the S-Branch Utility Tree," Econometrica, Econometric Society, vol. 46(2), pages 345-363, March.
    4. Sato, Kazuo, 1972. "Additive Utility Functions with Double-Log Consumer Demand Functions," Journal of Political Economy, University of Chicago Press, vol. 80(1), pages 102-124, Jan.-Feb..
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    More about this item

    Keywords

    two-stage budgeting; elasticities; price index numbers;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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