The document discusses Richard Stone's linear expenditure system model for analyzing consumer behavior. Some key points: - Consumer income is split into subsistence income for minimum commodity quantities and supernumerary income for additional purchases. - Commodities are grouped into broad categories where substitution is possible within groups but not between groups. Each group must contain substitutes and complements. - The utility function is additive, meaning utility is independent across commodity groups. Total utility is the sum of utilities from each group. - The linear expenditure system allows for desirable disaggregation of consumption patterns while maintaining the utility maximization framework of traditional models. It models substitution at the group level rather than for individual goods.

1. LINEAR
EXPENDITURE
SYSTEMS

11. Slide 7
Income of the consumer is split into two parts 1 subsistence
subsistence income second supernumerary income subsistence
income is that part of the minimum quantities of different
commodities the income left after the minimum expenditures
are covered can be regarded as a supernumerary income
slide 6
The substitution between groups of commodity is rolled out yet
a substitution can be take place within is group the commodity
by the consumer are grouped into such broad categories that
they remain compatible with the activity poster date of the
utility function
Each group must been include all substitute and complements
slide 5 the utility function is addictive daddy activity implies that
there is independent of utility of different groups of
commodities
Little

12. The development of linear expenditure systems can be traced
to recharge store richard John stone this model days with the
group of groups of commodity commodity rather than the
individual commodity commodities the aggregation of
aggregation of of groups of commodity heald tauter
consumer consumer expenditure the linear expenditure
system have much importance for economic trick approach
economic trick economics matric approach provide as they
provide desirable disaggregation of the consumption
function the formulation of linear expenditure system is
based based usually up on the utility function from which
demand functions are derived in the normal way by
maximization of the utility function subject to a budget
constraint in the approach of linear expenditure system in
this respect is the same as adopted in the models based the
pond indifference curve waise the phone based upon
indifference curve there is however a basic difference of linear
expenditure systems from indifference curve in that the
former applied to two groups of comedy groups of

13. 30 August 1913
London, England, United Kingdom
Died 6 December 1991 (aged 78)
Cambridge, England, United Kingdom
Nationality British
Institution Cambridge University
Field Economics
Alma mater Cambridge University
Doctoral
students
James Mirrlees
Angus Deaton
Influences James Meade
Colin Clark
Contributions National accounts, input-output
Awards Nobel Memorial Prize in Economic
Sciences (1984

14. There is however a basic difference of linear expenditure assistance from indifference
curve in that the former are applied to groups of commodity between which substitution
cannot be possible while the letter deal with comedy which can be substitutable the
Indifference map in the case of linear expenditure system sher Nasim down the most
crucial aspects of linear expenditure system is that the utility the total utility e u is the
sum of utilities derived from the various groups of commodity commodities for instance
it may be assumed that all the goods bought by the consumers are grouped into the
following five categories k food and beverages b clothing see consumer durables b
household operation expenses services such as education, health, transport,
entertainment exit exit etc total utility bracket you is addictive it can be expressed as dog
dog you is equal to you equal to you first some important characteristic of stone type
linear expenditure system are as below firstly the utility function is addictive addictive
implies that there is a independent of utilities of different groups of comedy
commodities little possibility of substitution complementary between the groups of a b c
d and e secondly the comedy borne by the consumer are grouped into such broad
categories that they remain compatible with activity postulate of the unit utility function
age group must include all the substitute and complements all the substitution between
groups of commodity out get substitution can take place between each group thirdly
income of the consumer is split into two parts first one