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Q2 Z2,(Q2) Z2(Q2) - Institute for Water Resources - U.S. Army

Q2 Z2,(Q2) Z2(Q2) - Institute for Water Resources - U.S. Army

Q2 Z2,(Q2) Z2(Q2) - Institute for Water Resources - U.S. Army

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term more negative and, since it is twice inverted, increase the elas-<br />

ticity of transport demand. The demand elasticity is weighted by the<br />

ratio of domestic consumption in B to imports and the supply elasticity<br />

is weighted by the ratio of domestic supply to imports. Since Market B<br />

is the importing region, domestic consumption is greater than domestic<br />

supply and the demand elasticity is given the greater weight.<br />

Within the second pair of brackets the situation is reversed.<br />

Market A is the exporting region so the supply elasticity is more<br />

heavily weighted. Again the elasticities are additive; however, here<br />

their sum is positive. The negative sign in front of the brackets<br />

causes the elasticities to affect the transport elasticity positively,<br />

i.e., an increase in the demand or supply elasticity of the exporting<br />

region will result in a higher (more negative) elasticity of transport<br />

demand.<br />

The remaining two terms in equation (3.A.25) are the weights <strong>for</strong><br />

the bracketed expressions. Since B will be the importing region, we<br />

know by definition that Pb > Pa and the importing region's elasticities<br />

are weighted heavier than the exporting region's.<br />

64

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