Chapter 2


Figure 2.4


Consumption of Starchy Staples by Income Group in Peru


 5--. ... ....................



 400 Potatoes


 Cd -%
 S 300 -White Bread
 0 Maize /


 200 "- "

 Barley .' .

 100 -



 0 --I I I I--
 2000 4000 6000 8000 10000 12000

 Annual Per Capita Income (soles)


Source: Poleman, 1983.

These kinds of patterns can be quantified for use in demand forecasting. The income
elasticity of demand for a commodity is defined as follows:

 Ad
 d
 6d = *Ai
 i
i.e. the percentage change in demand for food, divided by the percentage change in income.

The demand for a commodity will also change as its price changes. The price elasticity of
demand for a commodity is given by dividing the percentage change in demand by the
percentage change in price.


 Ad
 d

 P


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