The theory of the utility-maximizing consumer
describes the way in which consumption of a good depends upon the consumer's
income and the prices of the goods. Recently, researchers have focused on
combining this popular theory with the empirical analysis of consumption data to
form a systemwide approach. An example of this type of approach is the Rotterdam model of Barten (1964) and Theil (1965). The
model's strong links with consumer economic theory and its simplicity have
contributed to its popularity. A study demonstrated how the Rotterdam model, usually used for broad commodity
groups, can be reformulated so that it can be applied to narrower groups of
goods, such as beer, wines, and spirits, in order to estimate income and price
elasticities of demand. The Rotterdam model allows for the straightforward testing
of the block independence hypothesis, which, if confirmed, allows the analyst to
confine his attention to variables pertaining only to those goods that are block
independent.
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