Part A: Whole sample of 180 observations, price elasticities computed at the means<a). Mean household size FS = 2.5
Prices of: Food Housing Apparel Transport
Com.dities:
Food -.794 .554 -.280 -.200
Housing . 1 1 8 -.605 . 1 17 -.593
Apparel - 1 .626 -2.04 1 - 1 .965 - 1 .28 1
Transport -.899 - 1 .644 .309 -.965
Part B: Whole sample of 180 observations, household size and total expenditure elasticities computed at the means (a)and the two "quartiles"Ql' and Q3 (b). Mean household size FS = 2.5
Com.dities
Food
Housing
Apparel Transport
ouse o 1ze as c1 1es
H h Id s· El ti 'f Means Ql Q3 .370 .535 .3 1 6 - . 1 2 1 - . 1 26 -.090 . 145 .208 . 1 1 3 -.3 1 5 -.384 -.252
T tal E 0 ditu El ti 'ti re as c1 es
Means Ql Q3
-.346 -.500 -.295 -. 140 -. 146 - . 1 04 . 1 68 .24 1 . 1 30
.378 .462 .303
Part C: Household size elasticities for the four sub-samples of 45 observations each, obtained by grouping households according to size(a)
Com.dities FS=l FS=2 FS=3 FS=4
Food . 1 668 .3 1 35 .4320 .5208
Housing -.0446 -.0947 .:. 1485 -.2 103
Apparel .0652 . 1 26 1 . 1 689 .20 1 6
Part D: Total Expenditure elaticities for the four sub-samples of 45 observations each, obtained by grouping households according to size(a)
Com.dities FS=l FS=2 FS=3 FS=4
Food -.3898 -.3662 -.3364 -.3042
Housing -. 1295 -. 1 375 -. 1 438 -. 1 527
Apparel . 1 879 . 1 8 1 8 . 1 623 . 1453
Transport .3566 .3595 . 3844 .4200
(a) The consumption mean values used to compute the elasticities in Part A are those of the whole sample of 1 80 observations. In Parts B, C and D the means are those of the four sub-samples, with 45 observations each, grouping the households of equal size . (b) Q1 = lowest observation + 0.25 Range,
Q3
= lowest observation + 0.75 RangeIt is interesting to note here that while the cross-elasticity between Apparel and the price of Food is negative and elastic, the cross-elasticity between Food and the price of Apparel is negative but inelastic. This asymmetry in consumer reactions to price c hanges reflects the more essential nature of food compared to apparel, it is easier to delay or reduce the purchase of clothing than the purchase of food.
A similar asymmetry in consumer reactions to price changes also exists between Housing and Transport, on the contrary the cross-elasticity between Transport and the price of Housing is negative and elastic, the cross-elasticity between Housing and the price of Transport is negative and inelastic. An increase (decrease) in the cost of housing will generate a more than proportionate reduction (increase) in the demand for transport, on the contrary an increase (decrease) in the cost of transport will generate a less than proportionate reduction in the demand for housing services and durables. Consumers, when allocating their budget resources, give priority to their housing needs, rather than to their transportation needs.
The Household Size elasticities (Table 3.3, first three columns of Part B, and Part C) are all less then unity (i.e.consumers' reactions to marginal household size changes are inelastic), those for Food and Apparel are positive, those for Housing Operations and Transport are negative.
The demand for Food moves in the same direction as household size, but much less than proportionately. For households at the lower levels of expenditure (Q1 variable
values) the quantity of food purchased changes by more than half as much as the
marginal increase in household size; at higher levels of expenditure (Q3 variable
values), the change is about a third as much as that in household size.
This less than proportionate change in the purchase of food, with respect to marginal changes in household size, seems to indicate the existence of some economies of scale in food expenditure - as the expend.itt:ue on food grows less than proportionately than the household size, larger households will tend to spend a smaller proportion of their budgets on food. The economies of scale decrease as the household gets larger (Table
3.2 Part C). The smaller the household, the greater the savings achievable for a marginal increase in size: one-member households will increase their food consumption by about a fifth of their size increase, four-member households will increase their food consumption by about a half of their size increase. This, once again, is a reasonable finding as every householder experiences that the food cost per person decreases as the household gets larger, but at a decreasing rate.
The consumption of Apparel behaves in a way similar to the consumption of Food, but the absolute values of the Household Size elasticities for Apparel are half as large as those for Food: the changes in the consumption of clothing items, due to marginal changes in household size, are much less than the corresponding changes in food consumption. The demand for apparel is very inelastic with respect to changes in household size.
For Housing Operations and Transport, the Household Size elasticities are negative; those for housing being much smaller than those for transport. These indicate that the quantities of these two commodities consumed by the households decrease as household sizes increase, but less than proportionately. In the case of Transport, the larger the household the greater the marginal decrease in consumption as the household size increases (see Table 3.2 Part C). A possible reason why smaller households do not reduce their expenditure on transport as much as larger households is that while larger households might have either a large car or more than one car, and can find many ways to reduce their expenditure on transport, smaller households are likely to have only one small car and might find it difficult to reduce their transportation costs at all.
For all the commodities considered here, as the household size increases (see Table
3 .2 Part C) the household size elasticities get larger in absolute value, the consumers' reactions to changes in the size of their households get more responsive as the household size increases: larger households react more strongly to changes in their
size than do smaller households.
Looking now at the Total Expenditure elasticities (Table 3.3, last three columns of
Part B, and Part D) we find that Food is negative and inelastic, thus confirming the En gel' s Law which predicts that expenditure on food will decrease as income increases. In the case of New Zealand the proportionate decreases are larger at the lower levels of expenditure (Q1 variable values) than at the higher levels of
expenditure (Q3 variable values).
Housing Operations too has a negative Total Expenditure elasticity, but quite small in absolute value. The expenditure on this commodity decreases as the total expenditure increases, but much less than proportionately, and it decreases in a similar way at all levels of expenditure considered (Q1 's, the means, and Q3's).
The Total Expenditure elasticities for Apparel and Transport are positive and less than unity, and their absolute values decrease as the level of total expenditure increases. The households' response to increasing total expenditure gets less as the level of total expenditure gets higher.
Finally the Total Expenditure elasticities remain almost constant as the household size increases (see Table 3 .2 Part D). For the New Zealand households the most important factor in deciding what amounts to purchase of the four commodities considered here, is not so much their size, but their level of total expenditure.
3.3.3 The Italian Elasticities
The price elasticities for Italy are difficult to explain and justify as they appear to have little economic rationale. All own-price elasticities, except Transport, are positive, with the elasticity for Housing Operations almost as large as five . . All the cross-
elasticities are negative but most of them are substantially larger than unity in absolute value. Such highly elastic responses to price changes seem unlikely for essential commodities like those considered here.