The Systems of Consumer Demand Analysis: A Review
Journal Title: Current Investigations in Agriculture and Current Research - Year 2018, Vol 1, Issue 4
Abstract
For several decades both theoretical and empirical economist have shown interest in consumers behavior and regarding consumer’s preferences has increased our understanding enormously. This paper is based on the comparative assessment of the demand system selected; the Linear Expenditure System fails to describe consumers demand behavior as specified by Engel’s-Law. With the increasing expenditures, inferior commodities lean towards luxuries which are not plausible. So, for food demand analysis the LES is not appropriate. With utility maximizing behavior the Rotterdam is not consistent even if corresponds-to-generally-accepted-empirical-facts-and-is flexible (e.g. the substitutive or complementary relationship among goods and demand description for inferior commodities, necessities and luxuries). The parametric restrictions given by AIDS and Indirect Trans log System, theoretical properties of demand function can be imposed. Both systems depict generally empirical facts and are derived from flexible function from. However, estimation process may become difficult due to relatively high number of independent parameters the Indirect Tans log System. Linear Approximate Almost Ideal Demand System are much simpler in estimation and linear in parameters and therefore, LA/AIDS can be widely applied as basic model for empirical studies.For several decades both theoretical and empirical economist have shown interest in consumers behavior and regarding consumer’s preferences has increased our understanding enormously Brown and Deaton, 1972. Due to increased computing capacities and well as availability of detailed dataset, recently renewed interest has been registered. In particular, empirical research has come up with more sophisticated models of consumer’s behavior [1]. Modern consumer demand analysis is practiced by formulating and estimating demand system, which can be defined as given the prices of goods, income and with specific characteristics how consumers allocated their total expenditures to consumption of these goods or services is described by sets of equations. Thus, information on demand responses to change in prices of goods, income (expenditure) and other variables of interest is provided by complete demand system. In order to get meaningful information and justified outcomes, the conditions required by neoclassical microeconomic theory and fit the data well must be satisfied by such system [2].
Authors and Affiliations
Irfan Ullah, Abbas Ullah Jan, Atta Ullah Shah, Ghaffar Ali, Muhammad Fayaz
Keywords
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- EP ID EP570219
- DOI 10.32474/CIACR.2018.01.000118
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