Abstract
The main purpose of demand theory is to explain observed consumer choices of commodity bundles. Market parameters, typically prices and income, determine constraints on commodity bundles. Given a combination of market parameters, a commodity bundle or a non-empty set of commodity bundles, which satisfies the corresponding constraints, is called a demand vector or a demand set. The mapping which assigns to every admissible combination of market parameters a unique demand vector (or a non-empty demand set) is called a demand function (or a demand correspondence). Traditional demand theory considers the demand function (or correspondence) as the outcome of some optimizing behaviour of the consumer. Its primary goal is to determine the impact on observed demands for commodities of alternative assumptions on the objectives and behavioural rules of the consumer, and on the constraints which he faces. The traditional model of the consumer takes preferences over alternative commodity bundles to describe the objectives of the consumer. Its behavioural rule consists in maximizing these preferences on the set of corresponding commodity bundles which satisfy the budget constraint imposed by the market parameters. If there is a unique preference maximizer under each budget constraint, then preference maximization determines a demand function. If there is at least one preference maximizer under each budget constraint, then preference maximization determines a demand correspondence.
Published Version
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