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The rule of ½ states that the price elasticity of demand is equal to -½. This chapter elaborates the rule by providing the analytical foundations, pinpointing the precise conditions under which it holds. Also included is an assessment of the practical importance of the rule and some related results on feasible simplifications of demand elasticities. The income elasticity of the marginal utility of income is a key ingredient of the rule; estimates of this parameter are presented.

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Demand Elasticities Simplified II: Further Results and Details

  • 章节

  • 发表日期：

    2025年

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  • Kenneth W. Clements,
  • Haiyan Liu,
  • Marc Jim M. Mariano,
  • Eliyathamby A. Selvanathan,
  • Saroja Selvanathan,
  • George Verikios

摘要

The rule of ½ states that the price elasticity of demand is equal to -½. This chapter elaborates the rule by providing the analytical foundations, pinpointing the precise conditions under which it holds. Also included is an assessment of the practical importance of the rule and some related results on feasible simplifications of demand elasticities. The income elasticity of the marginal utility of income is a key ingredient of the rule; estimates of this parameter are presented.