ABSTRACT
As seen with John Muellbauer, Franklin M. Fisher and Karl Shell, and others, any attempt to include variable quality in a model of consumer theory, and to relate such models consistently to price indices, is no easy matter. The Hendrik S. Houthakker model frequently plays a role in these endeavors. The Houthakker model frequently plays a role in these endeavors. Consumer preferences influence the nature of alternative constraints in quality-quantity space. Even though the consumer may have information regarding the quality of a product or service, 'information' may not be sufficient for accurate decision making regarding the value. Traditional consumer behavior assumes the consumer knows his or her income and the prices of products to be purchased. The consumer then maximizes utility against a budget constraint, which is specified by income and prices. The utility-maximizing process determines the optimal quantity of products to be purchased.
