A Note on Time Elasticity of Demand

The writer is indebted to the officials of the London Press Exchange for details of several cases in which the result of a reduction in price of a branded and advertised commodity has been an absolute reduction in sales, which has persisted for some time. It is also common knowledge that the full elasticity of demand for most commodities is only established after a period of time, which may be of considerable length, has elapsed after the change in price. These two phenomena are not unconnected. The following pages embody an attempt to formulate the conditions governing time elasticity of demand, and conclude with a suggestion for its measurement. The argument is throughout confined to downward price movements, but the results seem applicable, with obvious readjustments, to upward movements. If the price of X falls from P to P', demand will increase if, (a) the demand for X is elastic, and if (b) X at price P' is recognised to be the same good as X at price P. X at P' is not an identical bundle of utilities to X at P: No good of which the quantity Q is bought is a similar bundle of utilities to those embodied in the same commodity when a different quantity, Q', is bought. If more is bought at P', it is because Q' units of the new bundle of utilities has a marginal utility equal to the marginal utility of the final unit of income spent upon the same commodity when Q is purchased at price P'. If demand curves are to be drawn, we must assume that the demand, Q, Q' . . . for X at P, P' . . . is for these successive bundles of utilities. Thus case (b) is only concerned with the physical identity of the commodity at the old and new prices. A negative element in the bundle of utilities ' X at P'' is the cost of ascertaining if X at P is identical with X at P'. Thus cost at P' (P' being any price except P) is P' plus this

Bundle · Commodity · Cross elasticity of demand · Demand curve · Economics · Elasticity (physics) · Income elasticity of demand · Marginal utility · Market economy · Microeconomics · Price elasticity of demand · Price elasticity of supply · Complex Systems and Time Series Analysis