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Estimation of Potato Demand Elasticities in Bangladesh

A. S. M. Anwarul Huq
Senior Scientific Officer
Agricultural Economics Division, Regional Agricultural Research Station, Bangladesh Agricultural Research Institute, Jamalpur

Shamsul Alam
Professor
Department of Cooperation and Marketing, Bangladesh Agricultural University, Mymensingh.

S.A. Sabur
Professor
Department of Cooperation and Marketing; Bangladesh Agricultural University, Mymensingh.

Abstract/ Executive Summary:

The study estimated potato demand elasticity in Bangladesh by using AIDS model with corrected Stone price index. The income elasticity of demand for potato was 0.632. The compensated and uncompensated own price elasticities indicated that all food items were price inelastic. The estimated own price elasticity indicated that if the potato price fell by 10 per cent, demand for potato would increase by 8.82 percent. The estimates of cross price elasticities indicated that the substitution effects of price change were not quite strong. Therefore, government price interventions may not lead to considerable price repercussions in the economy.

Keywords: Estimation, Potato, Demand elasticities

Location:

Start Date: 00-00-1995

End Date: 00-00-1996

Program Area: Socio-economic and Policy

Commodity: Potato

Objectives:

To estimate the demand elasticities of potato.

Methodology:

Data Sources: The demand analysis is based on data from the Household Expenditure Survey (HES) 1995-96, which was conducted by the Bangladesh Bureau of Statistics (BBS). Large sample size is needed to apply linear approximate Almost Ideal Demand System (LA/AIDS) which was chosen to estimate the parameters of the potato demand in Bangladesh. A total of 7,420 (5,020 rural and 2,400 urban) households were interviewed in the survey from which, by eliminating the abnormal data, the sample size stood at 7,072 (4,806 rural and 2,266 urban) households which are used for analysis in this study. Theoretical Framework: The basic objective of the theory of consumer behavior is to explain how a rational consumer chooses what to consume when confronted with various prices and limited income. Their choice for commodity bundles turns out to be formulated to utility maximizing or cost minimizing problem. The optimal solutions to these are Marshallian and Hicksian demand function perspective. The Implications of a Linear Budget Constraint :To understand consumer behaviour, we must recognise that the budget constraint is the hurdle perceived by the decision maker. A great deal of consumer demand analysis is built on the assumption of a simple linear budget constraint.

Source of Information: Bangladesh. J. Agric. Econs XXVII, 1(2004) 1-13

Article Link (Online Journal):

Funding Source:

Total Budget (Tk.) :

Achievement/Findings:

In the present study, fish-meat was found to be strongly expenditure elastic, while other food items were inelastic. Potato, which was the major concern of present study, emerged as a necessity commodity. Any increase in household's total expenditure (income) would be accompanied by an increase in expenditure on potato with less than proportionate increase in total expenditure. This would mean that increase in average total household expenditure (income) would lead to an increase in demand for potato by lower extent. The estimates of cross price elasticities indicated that the substitution effects of price change were not quite strong. Therefore, government price interventions may not lead to considerable price repercussions in the economy.

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