Elasticity of Food

The US dept for Food produce an interesting service on offering estimated elasticities of demand. [link]

This graph shows the Cross Elasticity of demand for various goods with respect to food.

I choose two countries – Bangladesh (low income) and the UK (relatively high income)

Source: [link]

What this means is that if the price of food rises 10%, then in the UK, demand for education falls by about 0.05%.

However, Bangladesh has a Cross Elasticity of demand of 0.32. Therefore a 10% rise in food prices would cause a 3.2% fall in demand.

The highest cross elasticity of demand is for recreation. Recreation is what we would call a luxury good. If income falls, we can lose spending on recreation because it is not essential.

It shows that for a poor country like Bangladesh, if food prices go up, it means a significant fall in spending on recreation. Demand in the UK remains mostly unchanged.

It’s a good example of how rising food prices will have much different effects in different countries. When food prices rise in the UK, it is an inconvenience. When food prices rise in developing countries, it makes families rearrange their whole budget.

Income Elasticity of Demand

As expected Bangladesh has a higher income elasticity of demand for food. For example, for dairy products, there is an income elasticity of demand of 0.89. For the UK it is 0.375. For the US it is 0.11

Price Elasticity of Demand

Update to What explains volatile price of food? According to US Dept of Food, the price elasticity of demand for breads and cereals at 0.04 — that is, it would take a 25 percent rise in price to induce a 1 percent fall in consumption.

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Elasticity