Elasticities of Demand for Various Foodstuffs

The table below shows the price and income elasticities of demand in the UK for various foodstuffs over a

13- and 3-year period, respectively. With the exception of lamb, all the foodstuffs have a price inelastic

demand. The lower the price elasticity of demand, the more the price is likely to fluctuate with any change in

supply, and hence, the greater will be the variability of farmers' and other food producers' incomes.

All the foodstuffs have an income inelastic demand. The lower the income elasticity of demand, the less will

demand rise as national income rises, and hence, the more slowly will farmers' and other food producers'

incomes rise over time.

Foodstuff Price elasticity of demand

(1988-2000)

Income elasticity of demand

(1998-2000)

Bread -0.94 0.12

Milk -0.17 -0.17

Cheese -0.35 0.23

Lamb -1.23 0.15

Pork -0.94 0.13

Fresh fish -0.69 0.31

Eggs -0.28 -0.01

Fresh potatoes -0.12 0.09

Fresh green vegetables -0.66 0.27

Frozen peas -0.68 0.06

Bananas -0.32 0.12

Cakes and biscuits -0.56 0.13

All foods n.a. 0.20

Source: 'Income and price elasticities of demand for foods consumed in the home', National Food Survey (ONS, 2001).

Required:

1. The income elasticity of demand for milk is negative (an "inferior" good). What is the implication of this

milk for milk producers?

[15 marks]

2. Why do pork and lamb have relatively high price elasticities of demand compared with the other foodstuffs

in the table? What are the implications of this for the relative stability or instability of the prices of pork and

lamb compared with other foodstuffs?

[20 ma