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    The Impact of Food Prices on Consumption: A Systematic Review of Research on the Price Elasticity of Demand for Food

    In light of proposals to improve diets by shifting food prices, it is important to understand how price changes affect demand for various foods.We reviewed 160 studies on the price elasticity of demand for major food categories to assess mean elasticities ...

    Am J Public Health. 2010 February; 100(2): 216–222.

    doi: 10.2105/AJPH.2008.151415

    PMCID: PMC2804646 PMID: 20019319

    The Impact of Food Prices on Consumption: A Systematic Review of Research on the Price Elasticity of Demand for Food

    Tatiana Andreyeva, PhD, Michael W. Long, MPH, and Kelly D. Brownell, PhD

    Author information Article notes Copyright and License information Disclaimer

    This article has been cited by other articles in PMC.

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    Abstract

    In light of proposals to improve diets by shifting food prices, it is important to understand how price changes affect demand for various foods.

    We reviewed 160 studies on the price elasticity of demand for major food categories to assess mean elasticities by food category and variations in estimates by study design. Price elasticities for foods and nonalcoholic beverages ranged from 0.27 to 0.81 (absolute values), with food away from home, soft drinks, juice, and meats being most responsive to price changes (0.7–0.8). As an example, a 10% increase in soft drink prices should reduce consumption by 8% to 10%.

    Studies estimating price effects on substitutions from unhealthy to healthy food and price responsiveness among at-risk populations are particularly needed.

    THE INCREASING BURDEN OF diet-related chronic diseases has prompted policymakers and researchers to explore broad-based approaches to improving diets.1,2 One way to address the issue is to change the relative prices of selected foods through carefully designed tax or subsidy policies. The potential of price changes to improve food choices is evident from growing research on how relative food prices affect dietary quality and obesity, particularly among young people, lower income populations, and those most at risk for obesity.3 Experience from tobacco tax regulation further underscores the power of price changes to influence purchasing behavior and, ultimately, public health.4

    Experimental research in both laboratory and intervention settings shows that lowering the price of healthier foods and raising the price of less healthy alternatives shift purchases toward healthier food options.5–8 Although these studies demonstrate price effects in specific, isolated settings or on 1 or 2 individual product changes, to our knowledge, the expected effects of broader food price changes have not been systematically reviewed. Such information would be helpful in designing policies that change the relative food and beverage prices paid by all or many consumers.

    Relatively small-scale, cost-neutral approaches to improving nutrition in vulnerable populations include the 2009 changes in the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) food packages; whole grains, fruits and vegetables, and soy-based milk alternatives were added to these packages, indirectly subsidizing healthy foods for WIC participants.9 Another larger scale approach is to change prices directly through taxing products such as sugar-sweetened beverages1,10 or subsidizing healthier foods (e.g., a refund on the costs of fruits and vegetables to Supplemental Nutrition Assistance Program participants).11 Some states already tax soft drinks and snacks at higher rates than other foods, but thus far taxes have been small and designed to generate revenue rather than influence consumption.12

    We sought to estimate the effects of price changes on consumer demand for major commodity foods included in the Dietary Guidelines for Americans food categories.13 We identified all published US studies of food price elasticity of demand (the expected proportional change in product demand for a given percentage change in price) and combined their estimates into average estimated price elasticities for 16 major food and beverage groups. Our goal was to provide a comprehensive summary of research on food demand and consumption behavior in the United States over the past 7 decades, with particular attention to differences in price effects across income levels.

    One timely estimate that can be gained from our review is how altering the prices of soft drinks can alter their consumption, information that is of critical need for policymakers considering soft drink taxes. We compared the sensitivity of estimates across different analytic approaches to modeling food demand. We identify important gaps in the food demand analysis literature and suggest avenues for future research.

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    METHODS

    We reviewed all US-based studies on the price elasticity of demand for major food categories to determine mean price elasticities by category and assess variations in estimates by study design.

    Definition of Terms

    The price elasticity of demand is a dimensionless construct referring to the percentage change in purchased quantity or demand with a 1% change in price. It is determined by a multitude of factors: availability of substitutes, household income, consumer preferences, expected duration of price change, and the product's share of a household's income.14 When the relative change in purchased quantity is below the relative change in price, demand is inelastic (numerically, the absolute value of price elasticity is below 1.0). In contrast, changes in demand that exceed the relative price change reflect elastic demand (the absolute value of price elasticity is above 1.0). For example, when a commodity's purchased quantity falls by 5% owing to a 10% increase in price, the price elasticity of demand is −0.5, reflecting inelastic demand. If the same price increase reduces the commodity's purchased quantity by 15%, demand for the product is elastic (−1.5).

    Source : www.ncbi.nlm.nih.gov

    EC 200

    Multiple choice questions.

    1.The price elasticity of demand is:

    a) the ratio of the percentage change in quantity demanded to the percentage change in price.

    b) the responsiveness of revenue to a change in quantity.

    c) the ratio of the change in quantity demanded divided by the change in price.

    d) the response of revenue to a change in price.

    2.If demand is price elastic, then:

    a) a rise in price will raise total revenue.

    b) a fall in price will raise total revenue.

    c) a fall in price will lower the quantity demanded.

    d) a rise in price won't have any effect on total revenues.

    3. Complementary goods have:

    a) the same elasticities of demand.

    b) very low price elasticities of demand.

    c) negative cross price elasticities of demand with respect to each other.

    d) positive income elasticities of demand.

    4. The price elasticity of demand generally tends to be:

    a) smaller in the long run than in the short run.

    b) smaller in the short run than in the long run.

    c) larger in the short run than in the long run.

    d) unrelated to the length of time.

    5. If the price elasticity of supply of doodads is 0.60 and the price increases by 3 percent, then the quantity supplied of doodads will rise by

    a) 0.60 percent. b) 0.20 percent

    c) 1.8 percent

    d) 18 percent.

    6. Suppose we know that the price elasticity of demand of good X is equal to -1.2. Then, if its price will increase by 5%, we can predict with certainty that

    a) quantity demanded of that good will increase.

    b) the revenue of the firm producing that good will increase by 6%.

    c) the revenue of the firm producing that good will decrease by 6%.

    d) the quantity demanded of that good will decrease by 6%.

    e) None of the above.

    7. A 10% increase in the price of movie ticket in Westridge 8 leads to a 15% decrease in the number of tickets sold, indicating the demand for movie ticket in Westridge 8 is:

    a) elastic.

    b) inelastic. c) unit elastic.

    d) Can not tell from the information given.

    8. If the cross-price elasticity between two commodities is 1.5,

    a) the two goods are luxury goods.

    b) the two goods are complements.

    c) the two goods are substitutes.

    d) the two goods are normal goods.

    True/False/Uncertain.

    For each of the following statements, say whether it is true, false, or uncertain and explain your answer.

    1. It is reasonable to expect the cross price elasticity of demand for golf clubs and golf balls to be positive.

    2. If the demand is perfectly elastic, then a shift in the supply curve does not affect the equilibrium price.

    3. The demand curve for autos is more elastic than the demand curve for Fords.

    4. Suppose you own a "Here Comes the Sun" tanning salon and the demand curve for your services is downward sloping. Further, suppose that a new tanning salon called "Sunny Delight" opens two blocks away from your salon. Tell whether the following three statements are true, false or uncertain and explain your answer.

    a. The demand curve for your services shifts to the right.

    b. The demand for your services becomes more elastic.

    c. The cross-price elasticity of the demand for your services with respect to the price charged by "Sunny Delight" is negative.

    Short Answer Question.

    5. Initially Hans Johnson was the only consumer in the market for "Casa de Econ" beer, produced by a small local brewery. When the price of "Casa de Econ" six-pack varies between $10 and $20, the price elasticity of his individual demand is equal to negative 1. Now imagine that Hans has been cloned 4 times, and now we have 5 identical consumers in the market for "Casa de Econ". What will happen to the price elasticity of market demand in the price range given above? Will the demand become more price elastic, less price elastic, or will elasticity stay the same? Explain your answer.

    Source : www.washburn.edu

    The demand for food as a whole is inelastic but the demand for specific kind of food tends to be elastic.What does this statement mean?

    Answer (1 of 6): “The demand for food as a whole is inelastic but the demand for specific kind of food tends to be elastic. What does this statement mean?” People must eat to survive, so for any population there is a basic nutritional requirement. In fortunate countries, most people can afford m...

    The demand for food as a whole is inelastic but the demand for specific kind of food tends to be elastic.What does this statement mean?

    6 Answers Ken Towl

    , MA intl econ, currency research with UN ECAFE, corporate economist

    Answered 2 years ago · Author has 791 answers and 522K answer views

    “The demand for food as a whole is inelastic but the demand for specific kind of food tends to be elastic. What does this statement mean?”

    People must eat to survive, so for any population there is a basic nutritional requirement. In fortunate countries, most people can afford more food than this, but there is a limit to how much you can eat even when food is cheap. Since the population’s overall demand for food doesn’t change a lot with price - demand is “Inelastic” (i.e. it doesn’t stretch).

    But things are very different when considering specific foods. People can switch from one food to anoth

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    Robert Birch

    , studied at University of North Florida

    Updated 2 years ago · Author has 785 answers and 373.7K answer views

    Gourmet coffee is among the most price sensitive foods in that a bag of coffee beans from Starbucks is highly elastic and expensive, even if on sale. But, a low level common brand of coffee is not price sensitive and relatively inelastic because a large can of ground coffee is not expensive and people will continue to buy the lower priced coffee even if the price has a slight increase. So, the price for high-end gourmet coffee is highly elastic while, at the same grocer, the price for a can of common coffee has a low price elasticity of demand.

    142 viewsView upvotes

    Chris Goodwin

    , works at Wholesale, Retail, Service Industry, Financial Consulting, Unive

    Answered 2 years ago · Author has 8.6K answers and 2.8M answer views

    We change our eating habits - not just personally, but collectively.

    Sometimes we then change back - think ice cream, every summer. Think barbecue food. But also you get waves of exotic, foreign food coming with waves of immigrants from different parts of the world - Thailand - Lebanon - Pakistan. People try “the new” - may like it, and “convert” - or just treat it as a pssing whim and return to older habits.

    But they are still going to eat a certain tonnage of food per year, and probably the same amount of meat, same veg, same fruit, same fish, and so on. Just the cuts, and the cooking, will va

    Phil Graves

    , former Professor of Economics, University of Colorado (1978-2020)

    Answered 2 years ago · Author has 463 answers and 141.9K answer views

    Whether a demand is elastic or inelastic depends on the quantity and quality of substitutes available. “Food” has no substitutes, but any *specific* food has lots of substitutes, hence the latter is more elastic.

    143 viewsView upvotesAnswer requested by

    Devis Msodock Related questions More answers below

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    Vilnis Krumins

    , Hons. B.A. Economics and Political Science & Philosophy, University of Toronto (1990)

    Updated 2 years ago · Author has 3.1K answers and 1.8M answer views

    The statement intends to convey the idea that peoples’ budget for food remains relatively constant (inelastic) in the face of changes in food prices and that people tend to substitute different type of food in the face of changing prices (which makes a “specific” food’s demand elastic).

    For example, if the price of beef rises then people might start buying more chicken. Or if the price of apples goes up then people might start buying more bananas, In both cases, the total money spent remains the same (according to the statement’s claims about “whole” demand being inelastic) while the “specific”

    Tom Longwell

    , A.B. from University of Chicago (2003)

    Answered 2 years ago · Author has 4.5K answers and 2.4M answer views

    It means that the demand for food as a whole is insensitive to price, but demand for a specific kind of food tends to be quite sensitive to price.

    If all soft drinks get 10% more expensive (maybe because of a tax), demand will decrease somewhat, but probably by less than 10%. If Coke gets 10% more expensive relative to Pepsi, demand for Coke will change by a lot, probably more than 10%.

    283 viewsView upvotesAnswer requested by

    Devis Msodock Related answers Related Answer Akhilesh Sajeev

    Answered 4 years ago · Author has 352 answers and 1.7M answer views

    Why is demand for water inelastic?

    Water is an essential good necessary to sustain life but yields utility only up-to a certain extent.

    Water usually comes for a negligible price for most of us, say $3 per month. Let's say we usually buy 100 ltr water a day.

    Tomorrow, even if the price rises to $1000, you would still try to buy some minimum amount of water - essential to sustain life.

    Source : www.quora.com

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