The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Demand Theory

  • Volker Böhm
  • Hans Haller
Reference work entry


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.


Budget sets Cardinal utility Completeness Consumption plans Consumption sets Contingent commodities Continuity Continuous preference orders Convexity Demand correspondences Demand functions Demand sets Demand theory Expenditure functions Giffen goods Hicksian (income-compensated) demand function Inferior goods Integrability of demand Inverse demand function Lebesgue measure approach Normal goods Ordinal utility Preference maximization Preference orders Quasi-concavity Reflexivity Representability of preferences Revealed preference theory Separability Slutsky matrix Slutsky, E. Transitivity Utility maximization Walras, L. 

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Volker Böhm
    • 1
  • Hans Haller
    • 1
  1. 1.