Outline

Introduction

A. Logistics
B. Content

I. The Theory of Demand for Goods and Services

A. Preferences

1. Reflexivity
2. Completeness
3. Transitivity
4. Continuity
5. Nonsatiation
6. Convexity
7. Differentiability

B. Constraints

1. Types of Constraints
2. The Budget Constraint

C. Constrained Choice – Rational Choice Theory

1. Behavioral Hypotheses
2. Equilibrium (graphically)
3. Effects of changes in Income (graphically)
4. Effects of changes in Prices (graphically)

D. The Calculus of Choice

1. Review of Constrained Optimization
2. Maximize utility subject to the budget constraint (2 goods)
a. The Lagrangian
b. First Order Conditions
c. Second Order Conditions
d. Characteristics of Equilibrium:
Interpretation of
Reservation Price
Indirect Utility
Roy’s Identity
3. Deriving Demand with 3, …, n Goods
Effects of Changes in Income
Effects of Changes in Prices
The Slutsky Equation

E. Duality: One More Demand Theory Topic

1. Introduction to Cost Minimization
2. Indirect Utility and Cost Functions
3. Properties of Cost Functions
4. A Third Way to Derive Demand
5. Compensated Demand Curves
6. Using the Dual to get the Slutsky Equation


II. Implications of the Basic Theory- Restrictions on Demand

A. Negativity
B. Symmetry
C. Adding-up
1. Engel Aggregation
2. Cournot Aggregation
D. Homogeneity
E. The Slutsky Relation
F. The Hotelling-Jureen Relation


III. Implications of the Demand Restrictions for Empirical Work

A. Single Equation Models

Required Readings:

Abdel-Ghany, M. & Schwenk, F. (1993). “Functional Forms of Household Expenditure Patterns in the U.S.” Journal of Consumer Studies & Home Economics, 17(4):325-342, December. Note: This estimates expenditure functions with a variety of common functional forms.

Lesser, C.F.V. (1963). “Forms of Engel Functions,” Econometrica, 31(4):694-703. Note: This forms the basis for the AIDS functional form for the demand function covered later in the course.

Jensen, H.H. & Yen, S.T. (1995) “Wife’s Employment and Food Expenditures Away from Home,” Consumer Interests Annual 41: 90-97.

Hunt-McCool, J., Kiker, B., & Ng, V.C. (1994). “Estimates of the Demand for Medical Care Under Different Functional Forms,” Journal of Applied Econometrics, 9:201-218. Note: Here you see another tack in confronting the zero purchases problem combined with the use of several different functional forms.

Pritchard T. & Defloer (1995). “The Effect of Taxes and Insurance Costs on Automobile Registrations,” Public Finance Quarterly 23(3):283-304. Note: A cross-section application using state averages as observations.

Blaine, T. W. & Reed, M. R. (1994). “U.S. Cigarette Smoking and Health Warnings,” Journal of Agricultural and Applied Economics, 26(2):535-544. Note: A time-series application.

B. Demand System Models – the LES, Rotterdam Model, AIDS model
See Deaton textbook (chapter 3)

Linear Expenditure System
Stone R. (1954). “Linear Expenditure Systems and Demand Analysis: An Application to the Pattern of British Demand.” Economic Journal 64: 511-527.

Rotterdam
Erkan, E. (2006). “Demand System for Agricultural Products in OECD Countries.” Applied Economics Letters 13(3): 163-169.

Almost Ideal Demand System
Deaton and Muellbauer (1980). “An Almost Ideal Demand System.” American Economic Review 70: 312-326.


Arnade, Carlos., Pick, Daniel., and Gehlhar, Mark (2005), “Testing and Incorporating Seasonal Structures into Demand Models for Fruit” Agricultural Economics 33(3): 527-532.

Anton P. Barten (1993), “Consumer Allocation Models: Choice of Functional Form” Empirical Economics 18: 129-158.

Micro-Data Application

Dong, D.S., B.W. Gould, and H.M. Kaiser (2004) “Food Demand in Mexico: An Application of the Amemiya-Tobin Approach to the Estimation of a Censored Food System.” American Journal of Agricultural Economics 86(4): 1094-1107.

Yen, S. K. Kan., and S.J Su (2002) “Household Demand for Fats and Oils: Two-Step Estimation of a Censored Demand System.” Applied Economics 14: 1799-1806.


V. Extending the Theoretical Model – Household Production

1. The Household Production Function – Robinson Caruso
2. A Simple Model of the Peasant Household
3. The Full Household Production Model

VI. Recent Application of Demand Analysis _ A Broad Perspective

Nutrition

Huang, K.S (1999), “Effects of food prices and consumer income on nutrient availability”, Applied Economics (31), 367:380.

Huang, K.S (1996), “Nutrient Elasticities in a Complete Food Demand System”, American Journal of Agricultural Economics 78(1): 21-29.

蕭清仁、李瓊映(2004) “臺灣地區主食類食品價格及所得變動對國民營養的影響”, 農業與經濟, 33: 83-111.

Welfare Analysis

Huang, K.S, and Sophia Wu Huang (2000), “Consumer Welfare Effects of Trade Reform in Taiwan's Meat Industry”, 中央研究院經濟論文 28(3): 321-337.

Huang, K.S (1993), “Measuring the Effects of U.S. Meat Trade on Consumers' Welfare” 25(1): 217-227.

Obesity and Overweight

Huang, C. L. ; Lee, J.Y., Lin, B.H. (2005) “Dietary Habits, Demographics, and the Development of Overweight and Obesity among Children in the United States” Food Policy 30(2): 115-128.

Forecasting

Huang, K.S (1989) “A Forecasting Model for Food and Other Expenditures”, Applied Economics 21(9): 1235-1246.


Food Safety

Oniki, S (2006), “Valuing Food-Borne Risks Using Time-Series Data: The Case of E. Coli O157:H7 and BSE Crises in Japan” Agribusiness 22(2): 219-232.

Henneberry, Shida Rastegari ; Piewthongngam, Kullapapruk ; Qiang, Han (1999), “Consumer Food Safety Concerns and Fresh Produce Consumption”, Journal of Agricultural and Resource Economics 24(1): 98-113.