Abstract
Demand theory describes and explains individual choice of consumption bundles. Traditional theory considers optimizing behaviour when the consumer’s choice is restricted to consumption bundles that satisfy a budget constraint. The budget constraint is determined by price–income pairs. A demand correspondence assigns to each price–income pair a non-empty set of optimal consumption bundles. A demand function assigns to each price–income pair a unique optimal consumption bundle. Optimality of consumption bundles is based on a preference relation. The theory derives existence and properties of demand correspondences (demand functions) from assumptions on preference relations and, if applicable, their utility representations.
Keywords
- Budget sets
- Cardinal utility
- Completeness
- Consumption plans
- Consumption sets
- Contingent commodities
- Continuity
- Continuous preference orders
- Convexity
- Demand correspondences
- Demand functions
- Demand sets
- Demand theory
- Expenditure functions
- Giffen goods
- Hicksian (income-compensated) demand function
- Inferior goods
- Integrability of demand
- Inverse demand function
- Lebesgue measure approach
- Normal goods
- Ordinal utility
- Preference maximization
- Preference orders
- Quasi-concavity
- Reflexivity
- Representability of preferences
- Revealed preference theory
- Separability
- Slutsky matrix
- Slutsky, E.
- Transitivity
- Utility maximization
- Walras, L.
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Böhm, V., Haller, H. (2018). Demand Theory. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_539
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DOI: https://doi.org/10.1057/978-1-349-95189-5_539
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