Applied Econometrics with SAS

Chapter 2

Theory of Demand

Contents

2.1 Overview

2.2 Preference Axioms and the Utility Function

2.3 Utility and Marshallian Demands

2.3.1 A Graphical Look at Utility and Demand

2.4 Indirect Utility

2.5 Hicksian Demands and Expenditures

2.5.1 The Slutsky Equation

2.6 Elasticities

2.7 Separability and Aggregation

2.1 Overview

Consumer theory, or the demand side of economics, is concerned with the constrained choices that consumers face. The consumer’s problem can be stated in several ways, but we will see that nearly all of these approaches boil down to problems of optimization. As you consume in the course of your daily life, you make the best use of your available resources and income. In order to characterize consumption choices mathematically, ...