New study reveals better way to estimate income and price elasticities!
The article compares two methods for estimating how people's spending changes with income and prices. One method uses double logarithmic functions, while the other relates budget shares to prices and incomes. The researchers found that the share equation method can model households that don't buy all goods and estimate demands important for policies. They calculated income elasticities and own- and cross-price elasticities for eight goods in 1993 using both methods and compared the results.