Green Energy Labelling - Green Energy and Efficiency: An Economic Perspective - page 149

Appendix 1: Quantity-Based Demand System, QBDS

The market for an appliance is assumed to be divided into two subtypes of appli-
ance: those with a label. The

rest of the characteristics of the machines are equal. So in this case the following
variables are de

' high ' energy-ef ciency label and those with a ' low '

ned:

V i demand for quality i (energy ef ciency) of good V (appliance) in comparable

units. That is,
P i price of quality i of good V
M total expenditure
P aggregate price of good V

w j expenditure share of good V

The demand for quality i of good V is thus de ned as

1

V i
V ¼ b i

P i
P

ð 2 Þ

Where b i 0 is the price sensitivity parameter.

Furthermore, a price index P is de

0 is a constant, and a

ned as

Y

P s i
i

P ¼

i

where s i 0 and

X s i ¼

1 ð 3 Þ

And the aggregate demand for all quality types as

l

P
M

V ¼ A ð 4 Þ

s i is the weight of a quality i good in the price index for good V . A > 0 is a constant
and µ is the expenditure sensitivity parameter for the aggregate demand for the

good.
It can be con rmed that the demand for each quality i for good V is homogenous

of degree zero in prices and income and that the price elasticity 2 ii is given by

2 ii ¼a þða lÞs i ð 5 Þ