Japanese Consumer Demand for Fresh Vegetables: Estimating and Testing an Inverse Demand System

Abstract

In this paper an inverse demand system is estimated and tested in comparison with a regular demand system. The regular system assumes that supplies are perfectly elastic and that demands adjust to clear the market, while the inverse system assumes that quantities are predetermined (or supplies are perfectly inelastic) and that prices adjust. Therefore the inverse system may be useful when analyzing the demand for perishable products such as fresh vegetables. The data set, based on Japanese household survey, consists of monthly per capita data from January 1980 through December 1995 for twelve principal items of fresh vegetables—cabbage, spinach, Chinese cabbage, Welsh onions, lettuce, radishes, carrots, onions, cucumbers, eggplants, tomatoes, and green peppers. The empirical results indicate that the inverse system dominates the regular system both in goodness of fit in the estimation sample period and in out-of-sample forecasting performance, and that prices are endogenous in the regular system while quantities can be regarded as exogenous in the inverse system. The estimates of inverse system suggests that prices are less responsive to change in consumption than found in the regular system.