Applied Demand Analysis: A Survey*

Applied demand analysis is usually taken to refer to the microeconomic analysis of consumer and producer behaviour, especially the nature of input demand and consumer demand equations. In this paper, we shall confine ourselves to consumer demand and provide a review of the relevant theory and empirical results. According to Stigler's (1954) survey of early research, applied demand analysis has a long history going back to the 1790s in England with the budget studies of David Davies and Sir Frederick Morton Eden. Regarding the role of prices in determining consumption, Stigler (I 954, p. l 03) argues that 'systematic and cumulative work ... began only in the 1870s ... when Fleeming Jenkin, Jevons, W alras, Marshall and others began to develop the demand function or curve as an integral part of the theory of price formation'. The earliest empirical analysis known to Stigler of the relationship between prices and quantities consumed was carried out in 1861 by Ernst Engel (whose 1857 famous budget study led to what is now known as 'Engel's law'-the proportion of income devoted to food declines with increasing income). Engel's 1861 research dealt with harvests and prices of rye in Prussia for the period 1846-61.