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Demand Theory

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The New Palgrave Dictionary of Economics

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.

This chapter was originally published in The New Palgrave Dictionary of Economics, 2nd edition, 2008. Edited by Steven N. Durlauf and Lawrence E. Blume

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  1. http://link.springer.com/referencework/10.1057/978-1-349-95121-5

    Volker Böhm & Hans Haller

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  1. Volker Böhm
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  2. Hans Haller
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    Böhm, V., Haller, H. (2008). Demand Theory. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95121-5_539-2

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    • DOI: https://doi.org/10.1057/978-1-349-95121-5_539-2

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    Chapter history

    1. Latest

      Demand Theory
      Published:
      28 April 2017

      DOI: https://doi.org/10.1057/978-1-349-95121-5_539-2

    2. Original

      Demand Theory
      Published:
      26 November 2016

      DOI: https://doi.org/10.1057/978-1-349-95121-5_539-1

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