Chapter 5 illustrates how demand responds to changes in the forces on which it depends. Using the theory of consumer behavior, we start out by explaining the concepts of price, income, and cross-price elasticity of demand, as well as how to derive these elasticities. We will also cover empirical evidence on the actual value of the price and income elasticities of demand for the live performing arts in several countries over several different time periods.

This chapter lies the microeconomic foundation to understand consumer demand in the cultural sector. We start out by outlining the assumptions that underlie the economic analysis of consumer choice, followed by a breakdown of how to measure the utility of the consumer, as well as how the consumer maximizes utility. We also show how to derive demand and supply curves which are essential to analyze the market powers at play in the cultural sector. Finally, we will show how to use the market demand and supply curves to determine the market price.

This chapter introduces the notion of value as a normative concept, as the price that something ought to exchange at. This does not mean that there is only one price that is its value for everyone, as objectivist theories of value assume: each of us forms our own opinion of the value of a thing. However, there are social forces that tend to produce convergence in our valuations. Value is thus normative, as it is influenced by assessment of what is a just price, and these assessments themselves depend on social norms about valuation. Building critically on the economics of conventions school and recent sociological work on valuation as a process, the chapter explains these normative assessments in terms of what it calls lay theories of value: norms about the fair price of commodities. It then discusses how valuation contributes to price determination, as one of multiple mechanisms in open economic systems. The second section of the chapter introduces the critical realist view of causation that enables us to make sense of this role for theories of value.