An analysis of the influence of selected socio-demographic variables on household consumption

Abstract

The changing food consumption patterns in the United States in the past several decades have led economists to seek new modeling methods for consumer demand analysis. In order to incorporate socio-demographic variables into demand analysis, equivalence scales can be utilized. These are a set of weights, each corresponding for example to a different age group in the household which can be used to determine an adult equivalent household size for various commodities. These equivalence scales are useful for welfare analysis, comparisons between households and for projecting future demand for commodities based on expected socio-demographic changes in the population. The research reported here determines a set of equivalence scales for white Southern U.S. households based on data collected in the 1972-1973 B.L.S. Consumer Expenditure Survey. The data are first used to establish income elasticities and direct- and cross-price elasticities for an array of fourteen general commodity expenditure groups. Using a methodology derived by Barten, the equivalence scales are, calculated for these commodities. Then via the methodology of Prais-Houthakker, and using some necessary information from the previous calculation, scales are computed for fifteen specific food commodity groups. The overall general household scales are computed as a weighted average of the various commodity scales. Comparison of the general household scales and the elasticity of household income with respect to household composition changes provides a means of determining cash cost-of-living differentials among households of different types. Results indicate that present tax, welfare, and unemployment benefit schemes, create different adverse incentives for households with different socio-demographic characteristics. In addition to the welfare effects analysis, a demonstration calculation is done to project the demand for the various commodities analyzed to the year 2030, as if equivalence scales for Southern white households were representative of the U.S. as a whole. Results indicate that the changing age profile of the population will most affect expenditures on shelter and fuel, food consumed away from home, education and reading, recreation, health care and personal care, and on beef, fish, and sugar and other sweets.