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Tanima Dutta, Lovely Professional University Unit-7: Recent Developments in Demand Theory

Notes
Unit-7: Recent Developments in Demand Theory

CONTENTS
Objectives

Introduction

7.1 The Pragmatic Approach to Demand Theory
7.2 The Linear Expenditure System

7.3 The Indirect Utility Function
7.4 The Expenditure Function

7.5 Lancaster’s Attributes or Characteristics Demand Theory

7.6 Summary
7.7 Keywords

7.8 Review Questions
7.9 Further Readings

Objectives

After studying this unit, students will be able to:
• Know The Pragmatic Approach to Demand Theory.
• Understand The Linear Expenditure System.
• Study The Expenditure Function.
• Know The Lancaster’s Attributes or Characteristics Demand Theory.

Introduction

Recently, the economists have raised a question over the profitability behavioural economics and
accordingly to make the demand theory more realistic they have created some models and rendered
some theories. In this chapter, The Pragmatic Approach to Demand Theory, in which functions of
stable elasticity demand, dynamic demand functions and empirical demand functions are included,
and the Linear Expenditure System, The Indirect Utility Function, The Expenditure Function and
Lancaster’s Attributes or Characteristics Demand Theory have been deliberated.

7.1 The Pragmatic Approach to Demand Theory

The conventional consumer behaviour and the advanced theories provide the economists a theoretical
basis for their models, but they cannot be used direct for the complex problems of the real world. But

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