Almost Ideal Demand System (AIDS)

The "Almost Ideal Demand System" (AIDS) is one of the most used demand systems. It is based on the finding that during his demand decision a representative consumer, under the consideration of budget constraints, tries to maximise his utility.

As a starting point specific classes of preferences are assumed. These preferences are depicted by a cost function (or expenditure function), that defines the necessary expenditure minimum of each representative consumer to reach a specific utility level at given relative prices.

In AIDS the price elasticities and expenditure elasticities vary with total output.

A major advantage of this model is that the derivation of the demand function from the utility function is subjected to restrictions, that can be empirically falsified.