TITLE : CONSUMER DEMAND
NAME : KUNAL KADAM
1. A Theory of Random Consumer Demand By MCCAUSLAND & William (2004).
This paper introduces a new theory of random consumer demand, where the foundation is a collection of probability distributions instead of binary preferences. The theory incorporates assumptions like transitivity, monotonicity, and convexity to define these distributions. Two key results provide a complete representation of consistent random demand. The theory is designed for empirical consumer demand analysis, offering several advantages: it is intrinsically stochastic, eliminates the need for external randomness like residuals, and is represented efficiently by a single function. Additionally, a method for statistical inference based on this theory Is outlined in a companion paper by McCausland (2004).
2. Elasticities of Demand for Consumer Credit By Karlan, Dean S. & Zinman, Jonathan (2005).
This study estimates the price elasticity of demand for credit using data from a randomized trial conducted by a microfinance lender in South Africa. The findings show that while demand for credit decreases as price increases, the demand curve is flatter than previous estimates in both developing and developed countries across a wide price range. However, demand becomes more sensitive to price at higher interest rates. The study also reveals that loan size is more responsive to changes in loan maturity than interest rates, especially among lower-income individuals, which aligns with liquidity constraints that ease as income rises.
3. Measuring Consumer Preferences and Estimating Demand Systems By William Barnett & Apostolos Serletis (2009).
This chapter is an up-to-date survey of the state-of-the art in consumer demand analysis. We review (and evaluate) advances in a number of related areas, in the spirit of the recent survey paper by Barnett and Serletis (2008). In doing so, we only deal with consumer choice in a static framework, ignoring a number of important issues, such as, for example, the e§ects of demographic or other variables that a§ect demand, welfare comparisons across households (equivalence scales), and the many issues concerning aggregation across consumers.
4. Consumers and Experts : An Econometric Analysis of the Demand for Water Heaters By Bartels, R. & Fiebig, D.G. & van Soest, A.H.O. (2003).
The study discusses how consumers gather product information through searching, advertising, and expert advice. It provides examples of experts, such as doctors, mechanics, accountants, and plumbers, who give recommendations on products or services. In the case of water heaters, plumbers not only advise on the best choice but also install the appliance. This creates a potential information asymmetry, where plumbers may have incentives to recommend products that benefit them financially. The paper presents an econometric study examining the factors influencing consumer choices and plumbers’ recommendations. The findings suggest that plumbers may prioritize heater characteristics that increase their profit margins, potentially not always acting in the best interest of the consumer.
5. Competition and Consume Choice in Option Demand Markets By Gilad Sorek (2015).
The resarch discusses a model where two medical providers choose their location and specialization and then compete on price under health insurance sales. Consumers know their location but are uncertain about their medical needs until they get sick, creating demand for access to multiple providers. The paper identifies two possible market equilibria. In the first, providers locate at opposite ends of the city and offer the same services, with each consumer choosing the nearest provider. In the second, providers locate at the city center and offer differentiated products, with all consumers opting for access to both providers. The efficiency of the market depends on factors like mismatch and commuting costs. The market can result in too much, too little, or the right amount of consumer choice, but proper regulation of provider locations can ensure an efficient outcome.
6. The Impact of Inflation on the Size of the Domestic Demand for Consumer Goods and Services By Aniela Balacescu & Marian Zaharia (2011).
The impact of inflation on society has significant consequences. One of the major effects of inflation is the uncertainty generated when the inflation rate is volatile which can lower purchasing power of consumers, which means that it is thanks to the less if you do not increase and the revenue in the same rhythm. In this article we intend to analyze statistically the impact of inflation on the size of the domestic demand for consumer goods and services in the period 2000-2010.
Inflation is characterized by a general and sustained increase in prices, affecting different categories of economic goods. It alters the relationships between prices, with one major effect being the rise in consumer goods prices in line with wages, leading to profits and encouraging production where resources are available. Inflation primarily results from an imbalance between aggregate demand and aggregate supply, where nominal demand is artificially high compared to the actual supply of goods during a given period.
7. The two demands: Why a demand for non-consumable money is different from a demand for consumable goods By Dmitry Levando (2020).
The paper highlights key differences between the demand for consumables and non-consumable credit money. Unlike consumables, money is a stock variable and cannot be demanded by just one agent. Credit requires trust and arrangements to clear debts later, and for a finite period, there is zero demand for non-consumable money (the Hahn paradox). These issues are crucial for developing the micro-foundations of monetary macroeconomics, especially regarding liquidity traps and credit crunches, areas not deeply explored in existing literature. Contemporary economic theory, particularly work by Martin Shubik, offers some insights, and understanding these micro-foundations is essential for addressing credit crises and cycles within real and financial sectors of the economy.
8. Disaggregated econometric estimation of consumer demand response by alcoholic beverage types By Srivastava, Preety & McLaren (2015).
The paper estimates price elasticities of demand for 12 types of alcoholic beverages in Australia, including different categories of beer, wine, ready-to-drink (RTD) beverages, and spirits. These categories are relevant for policymakers considering taxation and health policies. The demand system is estimated using Nielsen data and a semiflexible Almost Ideal Demand System model to ensure proper demand parameter estimation. The results show that most commodities have own-price elasticities, and cross-price elasticities suggest that products with negative externalities (like full-strength beer, dark RTD, and dark spirits) may require joint taxation. A tax increase on cask wine could lead consumers to switch to more undesirable beverages. The elasticity estimates help assess the potential effects of hypothetical tax changes based on alcohol content.
9. Impact of Overwhelming Joy on Consumer Demand By Jean-Marc Falter & Christophe Pacrignon & Olivier Vercruysse (2008).
The article examines the impact of a Soccer World Cup victory on the demand for soccer in the winning country. Focusing on France after their 1998 World Cup win, the authors find that the victory significantly boosted consumer demand for soccer, with this increase being both positive and lasting. The rise in demand was particularly strong in the nine cities that hosted World Cup matches. Even after accounting for season ticket holders, the effect on attendance remained notable. Additionally, the authors find further evidence supporting the idea that exceptional sports performance enhances the popularity of the sport by analyzing soccer attendance in other countries and looking at attendance for potential soccer substitutes in France.
10. Estimating a Consumer Demand System of Energy, Mobility and Leisure: A Microdata Approach for Germany By Beznoska, Martin (2014).
This paper empirically investigates consumer demand for environmentally relevant goods in Germany, focusing on their relationship with leisure demand. It examines the effects of higher prices for energy goods like gas, electricity, and fuel oil, often caused by increased indirect taxation, and the resulting welfare and distributional impacts on households. The paper also addresses the lack of research on the labor market implications of environmental taxation, specifically the effects on labor supply and leisure demand in Germany. Using a demand system, the study estimates price, cross-price, and income effects for goods such as mobility, electricity, heating, and leisure, incorporating both extensive and intensive leisure demand. These findings are used for welfare and behavior analyses.
Conclusion :
In conclusion, these studies present a comprehensive understanding of the various forces shaping consumer demand across different markets and contexts. From the foundational theories of random consumer demand to the detailed analysis of price elasticities in alcohol consumption, each paper contributes to our understanding of how consumer preferences and behaviors evolve in response to economic, social, and environmental factors.
The research on consumer demand for environmentally relevant goods in Germany, for example, highlights the significant relationship between energy prices, taxation, and leisure demand, underscoring the broader implications of environmental policies on both the welfare of households and labor market participation. Similarly, the studies on alcoholic beverages and credit demand provide crucial insights into how price changes can influence consumption patterns, especially in response to taxation policies or credit conditions. These findings are particularly relevant for policymakers, who can use them to design more effective tax regimes and credit systems that align with public health and economic goals.
Furthermore, the analysis of consumer behavior during significant societal events, like a Soccer World Cup victory, adds another layer to our understanding of how external factors—such as overwhelming joy and national pride—can drive durable shifts in demand. This effect was notably observed in the increased demand for soccer in France following their 1998 World Cup win, illustrating how emotional and cultural phenomena can translate into long-term changes in consumer behavior.
The studies on the two demands—consumable goods versus non-consumable credit money—also offer important theoretical advancements, particularly in the field of monetary economics. By distinguishing between the demand for consumables and the demand for non-consumable money, the research emphasizes the need for distinct analytical approaches when studying financial markets and consumer behavior, especially in times of economic instability or liquidity crises.
Overall, the body of work reviewed provides a valuable toolkit for understanding the complex interplay between prices, consumer choices, and external influences. It also highlights the need for more nuanced approaches to consumer demand analysis, incorporating elements of stochastic behavior, expert recommendations, and external events. These insights not only enhance our theoretical understanding but also offer practical guidance for policymakers, businesses, and economists working to anticipate and respond to shifts in consumer demand.
References :
1. McCAUSLAND, William (2004): A Theory of Random Consumer Demand
2. Karlan, Dean S. & Zinman, Jonathan (2005): Elasticities of Demand for Consumer Credit
3. William Barnett & Apostolos Serletis (2009): Measuring Consumer Preferences and Estimating Demand Systems
4. Bartels, R. & Fiebig, D.G. & van Soest, A.H.O. (2003): Consumers and Experts : An Econometric Analysis of the Demand for Water Heaters
5. Gilad Sorek (2015): Competition and Consume Choice in Option Demand Markets
6. Aniela Bălăcescu & Marian Zaharia (2011): The Impact of Inflation on the Size of the Domestic Demand for Consumer Goods and Services
7. Dmitry Levando (2020): The two demands: Why a demand for non-consumable money is different from a demand for consumable goods
8. Srivastava, Preety & McLaren, Keith R. & Wohlgenant, Michael & Zhao, Xueyan (2015): Disaggregated econometric estimation of consumer demand response by alcoholic beverage types
9. Jean-Marc Falter & Christophe Pérignon & Olivier Vercruysse (2008): Impact of Overwhelming Joy on Consumer Demand
10. Beznoska, Martin (2014): Estimating a consumer demand system of energy, mobility and leisure: A microdata approach for Germany