Estimating elasticities of demand for tea in Iran by panel data method

Tea is the most consumed beverage in the world exclusive of water, and per capita tea consumption of Iranian households is higher than the global average. This paper estimates the degree of consumers’ sensitivity to changes in price of the tea category and household expenditure in order to examine the role of the product in the household consumption bundle. For this, tea category demand function is estimated as an application of Linear Expenditure System and pooled data - pooling of time-series and cross-section data in the form of income decile-year - during 2005-2014 using panel data methods, and then the price and income elasticities are calculated and analyzed. According to the results of estimating elasticities, the demand for the tea category is price and income inelastic, -0.42 and 0.53, respectively that shows tea is a necessity for the average of the income deciles at over the time period, on average.