Price elasticities, joint products, and international trade

This paper extends the basic results of Houck’s insight for derived demand elasticitiesfor the case of joint products by allowing for the possibility of the joint and rawproducts being traded. Theoretical relationships between individual demands for aset of jointly-produced commodities that are traded and composite demand for theraw product from which the joint products originate are derived. It is shown thatwhile the derived price elasticity of domestic demand retains the same form asHouck’s original formula, the relevant price elasticities of demand to include in theformula are elasticities of total demand instead of domestic demand elasticities.Using the USA soybean industry as an example, this generalised formula that takesinto account trade is implemented to calculate the elasticity of total demand for USAsoybeans. The usefulness of this formula for policy-makers to trace out the impactsof changes in market conditions and trade policy in the joint-products, and how itwill impact the price elasticity of domestic and total demand for the raw product, isdemonstrated.