Estimating the Almost Ideal Demand System for Citrus in Iran

The lag between production and supply of horticultural products such as citrus fruits causes their supply to remain constant in short run and thus their prices are adjusted by consumers’ behaviors resulting the corresponding markets to be cleared. In this context, employing inverse demand system for which quantities are functions of prices is justified. In this study, an Inverse Almost Ideal Demand System was applied to the Iranian household expenditure survey data of 2011 to empirically analyze how the consumers respond to supply changes of citrus fruits including oranges, tangerines and sweet lime. The results showed that all own-price flexibilities are negative and their absolute value are less than one. All cross-price flexibilities are negative implying that the citrus are substitutes from consumers’ point of view. Based on the findings, sweet lime faces the highest price changes in response to changes in its own-supply and or the other citrus supply, whereas this is the lowest for tangerines.

JEL Classification: R21, Q11, C21

Keywords:
Inverse Almost Ideal Demand system, Price Flexibility, Citrus, Iran