In theory, the factors that influence how a consumer allocates his expenditure are income and the relative price of commodities. Most references in Taiwan divide commodity expenditures into seven categories and use a linear functional form (or one that can be transformed into linear form). Therefore, the effects of income and prices are independent.
This paper separates commodity expenditure into twelve categories, use a nonlinear form, and considers the interaction of income and prices, as well as the effects of time trends can be measured. The nonlinear regression process in this study has been carefully manipulated.
From the empirical analysis, we find a very good fit between these three factors. Also, the results are consistent with the main properties of the demand function. However, because it has not been tested whether the grouping itself is proper, some income elasticities results are unreasonable.
