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Unit-7: Recent Developments in Demand Theory

7.5 Lancaster’s Attributes or Characteristics Demand Theory Notes

Prof. Lancaster proposed a new customer’s theory based on characteristics of products in 1966.
According to this theory, characteristics of products not only give product utility and describe products
as bundle of characteristics. Let’s take the example of bread, whose characteristics include taste, calorie,
protein etc. Even then, there can be same characteristics in different products with other characteristics
in different mixtures. There are different bundles of varieties of sweetness, good smell, juiciness,
vitamins, many varieties of apple, mango, orange etc. There is different bundle of characteristics in
a ‘golden’ apple in comparison to ‘sweet red’ apple. According to Lancaster, every product presents
consumption technology to produce characteristics.

Its Assumptions
To describe Lancaster’s Demand Theory, we take the assumptions described below.
1. Three varieties or brands of apples.
2. They have only two qualities — sweetness and juiciness.

3. There are only these three brands of apples to produce sweetness and juiciness.
4. Can be measured in sweetness and juiciness.
5. Cost of one brand is different from others.
6. Income of customer is given.
7. Intension of customer is to maximize its utility with a mixed bundle of characteristics.

Fig. 7.6

A
6 X

Sweetness 5 Y B

4

3
C
2
Z

1

O
1 2 3 4 5 6
Juiciness

The Theory

On given these assumptions, a customer who consume only one variety of apple which described the
characteristics of sweetness and juiciness of that variety in table 1 can be consumed only in that ratio.

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