Econometric modelling of household behaviour

Abstract

The aim of this dissertation is to first study the theory related to consumer expenditure and then try and fit the best statistical distribution through the data points obtained from the survey. The aim of chapter 1 is to justify the existence of rules for deciding how much a consumer spends on a particular good. These rules will be defined as demand functions. The set of preferences of a consumer will be defined, and hence, one can see how from these preferences, a utility function is obtained. The utility function models how a household spends its budget. Optimisation of these utility functions will yield demand equations. The concept of duality will be then introduced and hence the transition from one set of demands to the other will be explained. Elasticies and their use will also be explained in this chapter. Some constraints of the demand equations will be reviewed. These constraints are the basis for the models mentioned in chapter 2.