Price elasticities, joint products, and international trade
Piggott
Nicholas E.
Wohlgenant
Michael K.
2002
This paper extends the basic results of Houck’s insight for derived demand elasticities
for the case of joint products by allowing for the possibility of the joint and raw
products being traded. Theoretical relationships between individual demands for a
set of jointly-produced commodities that are traded and composite demand for the
raw product from which the joint products originate are derived. It is shown that
while the derived price elasticity of domestic demand retains the same form as
Houck’s original formula, the relevant price elasticities of demand to include in the
formula are elasticities of total demand instead of domestic demand elasticities.
Using the USA soybean industry as an example, this generalised formula that takes
into account trade is implemented to calculate the elasticity of total demand for USA
soybeans. The usefulness of this formula for policy-makers to trace out the impacts
of changes in market conditions and trade policy in the joint-products, and how it
will impact the price elasticity of domestic and total demand for the raw product, is
demonstrated.
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