Munich Personal RePEc Archive

Elasticities under two-stage budgeting

Zeelenberg, Kees (1986): Elasticities under two-stage budgeting.

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Abstract

Under two-stage budgeting, the consumer allocates first his income to groups of goods and then for each group the expenditure to the goods that belong to the group. This paper derives expressions that relate the price and income elasticities and the elasticities of substitution of the demand for groups to the corresponding elasticities of the demand for groups and those of the within-group demand for goods. In particular, it is shown that the elasticity of substitution between two goods from different groups is equal to the elasticity of substitution between the groups, modified for within-group income effects.

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