Microeconomic theory of consumer behavior, in the form of a partial equilibrium linear expenditure system of demand equations, and econometric techniques of ordinary least squares are applied to a unique set of post-1983 urban Chinese household annual consumption survey data to estimate expenditure and own price elasticities of demand in a linear expenditure system in China's partially reformed economy. This work is stimulated by the survey data collected in the 1980s by China's statistical bureaus from over one hundred cities, made available to the author. This work finds significant expenditure and own price elasticities of demand consistent with utility maximizing consumer behavior on the part of urban Chinese households, and in a trend suggestive of the expression of consumer preferences in markets over a period when disposable incomes are increasing. The households' behavior is consistent with the existence of effective markets without excess demands. Realization of this market efficiency is a key specific goal of the October 20, 1984 Economic Structural Reform Program resolution as promulgated by the Chinese policymakers. At the same time this work affirms the suitability of choosing the Linear Expenditure System to analyze the data by use of the Almost Ideal Demand System to confirm the homogeneity of demand and through particular elucidation of the institutional setting. The role of economic theory in the formulation of economic policy in the reform of socialist, centrally planned economies and in particular Chinese economic policy is shown to be consistent with the empirical outcome in the sector under study.
展开▼
