Epsilon Archive for Student Projects

Abstract

The demand for food is susceptible to variation in several factors. Knowledge about the nature of food commodities and how consumers react are important for decision makers. The Swedish consumers have decreased the budget share spent on food commodities during the end of the 20th century (Eidstedt et al. 2009). The purpose of the study is therefore to analyze the Swedish demand for food over the period 1980-2011. By estimating price and expenditure elasticities for the Swedish consumers the nature of the demand can be found, allowing for analysis of how consumers react to changes in price and expenditure. A conditional Rotterdam demand system approach is used in order to find the elasticities. Testing of separable utility structures is also conducted in order to verify plausible structures for the Swedish consumers, which can be employed when constructing complete demand systems.

The estimated result was obtained maintaining the hypothesis of the laws of demand. Given the conditional approach, approximations of unconditional elasticities were computed. Both the unconditional and conditional own-price elasticities indicate that the Swedish demand is insensitive to price changes. The estimated conditional expenditure elasticities indicate a mixed result between luxury commodities and necessities (sensitive and insensitive commodities). The approximation of the unconditional expenditure elasticities does however indicate that the demand is insensitive to expenditure changes. The robustness of the expenditure elasticities is however uncertain given the problems of the Rotterdam approach, a more flexible functional form for the expenditure elasticities is desired.

For the separable utility structures, the hypothesizes that; meat can be weakly separable from other commodities, and the hypothesis that the demand can be weakly separable according to; animal, vegetable-based and beverage products, could not be rejected. This indicates that the verified structures can be incorporated in a complete demand system reducing the risk of misspecification.