Abstract

VAZQUEZ ALVARADO, Jorge Miguel Paulino  and  MARTINEZ DAMIAN, Miguel Ángel. Empirical estimation of elasticity of supply and demand. Rev. Mex. Cienc. Agríc [online]. 2015, vol.6, n.5, pp.955-965. ISSN 2007-0934.

The elasticity of supply and demand is an indicator of the behavior of producers and buyers to changes in commodity prices. It helps entrepreneurs and government officials to evaluate their pricing policies. In Mexico, this indicator is not commonly used, due to the belief that the elasticity can only be calculated using sophisticated econometric techniques. This study aimed to prove that through a simple method reliable elasticity can be obtained. The process began by determining the models that represent supply and demand in a simplified form. To each of these was calculated their parameters through multiple regression for which was used linear, double logarithmic or semi-log functions according to the case. From each equation the coefficient of the price (β) was taken to calculate the respective elasticity. These were compared with those obtained by sophisticated methods. It was concluded that i) price elasticity of supply calculated by regression, differs in value from those calculated with system of equations; and ii) the use of multiple regression is an option to calculate price elasticity of supply and demand as long as the model includes variables that markedly affect the supply or demand.

Keywords : double logarithmic function; linear function; multiple regressions; semi-logarithmic function.