Estimating the Almost Ideal Demand System Model for Rural Households in Iran

This paper valuates the price and income sensitivity of demand for consumer goods in rural households over the period 1971 to 2008 using the linear almost ideal demand system (LAIDS) and the iterative seemingly unrelated regressions (ISUR). The results of this study show that the based on the Marshalian price elasticity, the highest price sensitivity is in the transportation group and lowest price sensitivity is in the clothing group. The absolute value of price elasticity for clothing, food, health, furniture and housing groups is less than unit, in other words, this group of goods, are low elasticity goods, that is if their price change by a percent, the demand for that goods will change less than one percent. The sign of income elasticity is positive for all commodity groups which suggest that all commodity groups are normal goods for the rural consumers. In other words, if income increases, the demand for these commodity groups will be increased. The value of this elasticities shows that the three groups of food, shelter and health have less than unit income elasticity indicates that they are placed in the category of essential goods and income elasticity for the three groups of clothing, furniture and transportation is greater than unit indicates that they are placed in the category of luxury goods.