Derived demand and price relationships : an analysis of the Norwegian cod sector

Abstract

In this paper we note that when there is only one variable factor in the intermediaries' production technology, prices will move proportional to each other over time. This is also the only general condition under which the elasticity of price transmission is equal to one, so that retail price signals are perfectly transmitted to primary product producers and vice versa. This allows a test of whether derived demand elasticities contain information about consumer elasticities using only prices. An empirical analysis is carried out for the Norwegian cod sector. Since prices are found to be nonstationary, cointegration tests are used to test for price proportionality.