Page 156 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Unit-7: Recent Developments in Demand Theory

4. This new theory gives a practical apparatus to researchers of a company and market by which they Notes
recognize the speciality of new brand of an object. If an object comes in market which has better and
more specialities, then consumer will give more value to this brand and buys it. Theories of classical
and new classical fail to describe of these sides of consumer behaviour.
5. Lancaster’s Demand Theory gives a new vision of conceptions of substitutions and supplementary.
According to Lancaster, substitutions are those objects which have some consumer properties.
Those objects which have not equal properties are not related. On the other side, these objects are
complementary which attend the specialities by taking two or more objects. For example, coffee,
sugar and milk and candle and matchsticks are complementary.

Its Weaknesses

Demand theory of Lancaster’s has some weaknesses. For example—
(1) Consumer has to think the specialities of an object of a brand before buying it which is subjective.
Specialities of an object can be different from a consumer to another, so it could not say perfectly
about specialities of units received by different brands. It is not possible to make this speciality of
an object.
(2) It has same weaknesses which remains analysis of neutral curve because it requires measurement
of consumer value for mixing specialities of different types of an object which cannot be measured
accurately.
(3) One more weakness of this theory when consumers buy an object, they expend on its quantity and
not for speciality found in it.
Inspite of these weakness, Lancaster’s new demand theory has an important place in economical theory
for conception of substitutions and complementary, analysis of different aspects of demand theories
and introducing an object and brand in market.

7.6 Summary

• The problem of union arose at the time of calculations of demand curve. Deriving a demand curve
is better fit on the basis of a set of related observation of price and demand of an object. Other than
it if supply curve shifts then point traces by supply curve can unify demand curve for the solution
of problem of unification for demand curve should require pair equation in aspect of single solution
which is a complex process.

7.7 Keywords

• Non-durable: Variable
• Theory: Assumptions
• Subjective: Personal
• Weaknesses: Feebleness

7.8 Review Questions

1. What is active demand function? Explain.
2. What do you mean by linear expenditure function?

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