ABSTRACT
This chapter presents an individual and aggregate models of consumer behavior based on the theory of exact aggregation. The model incorporates aggregate time series data on quantities consumed, prices, the level and distribution of income, and demographic characteristics of the population. It can also be used to make projections for groups of individuals within the United States, classified by income and by demographic characteristics. The chapter developes measure of individual welfare that make it possible to evaluate the impact of alternative economic policies. There are two distinct lines of empirical research on consumer behavior. They are: issuing from the seminal contributions of Schultz, Stone, and Wold, has focused on the role of prices and incomes as determinants of consumer expenditure; realized most fully in the classic study of family budgets by Prais and Houthakker, has focused on the role of demographic characteristics and incomes of individual households as determinants of consumer expenditures.
