Price Effects in the Short and in the Long Run

Quaderni - Working Paper DSE N° 1040

49 Pages Posted: 28 Nov 2015

See all articles by Davide Dragone

Davide Dragone

University of Bologna - Department of Economics

Paolo Vanin

University of Bologna - Department of Economics

Date Written: November 27, 2015

Abstract

We study a broad class of dynamic consumer problems and characterize the short and long-run response of the demand for a good to a permanent increase in its market price. Such response can be non-monotonic over time, and the short and long-run price-elasticity of demand may have opposite sign. This is a testable prediction and can arise even in the absence of income effects. Our results are robust to a variety of settings that are commonly used in the economic literature, and have relevant policy implications. We provide illustrative applications to models of human capital and labor supply, addiction, habit and taste formation, health capital, and renewable resources.

Keywords: Price elasticity, Non-monotonicity, Price-based policies

JEL Classification: D11, D91, I00

Suggested Citation

Dragone, Davide and Vanin, Paolo, Price Effects in the Short and in the Long Run (November 27, 2015). Quaderni - Working Paper DSE N° 1040, Available at SSRN: https://ssrn.com/abstract=2696086 or http://dx.doi.org/10.2139/ssrn.2696086

Davide Dragone (Contact Author)

University of Bologna - Department of Economics ( email )

Piazza Scaravilli 2
Bologna, 40126
Italy
0039.051.2098880 (Phone)

HOME PAGE: http://https://www.unibo.it/sitoweb/davide.dragone/en

Paolo Vanin

University of Bologna - Department of Economics ( email )

Piazza Scaravilli 2
Bologna, BO 40126
Italy
+39-0512098120 (Phone)
+39-0512098040 (Fax)

HOME PAGE: http://https://sites.google.com/site/paolovanin/

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