The analysis of consumer allocation of personal expenditures among various goods and services has been a continuing interest both to economists and planners. The interest in the topic has been greater in the case of developing countries because the allocation of economic resources to development has been very important for such countries. In the developing countries of today there is a pervading sense of urgency and impatience to attain a higher standard of living and an economic growth comparable to the developed countries. This thesis extends the modelling of urban household demand in Iran in five important respects: The first contribution is the creation of a new data set for urban household demand in Iran. Previous studies have used data from either the Central Bank or from the Iran Statistical Centre. The longest time series used in various earlier studies was 1971-1991 but, I have constructed a series from 1967 to 1996. However, there have been a number of problems with previous time series due to missing observations, and by combining data from both sources I have attempted to construct a complete series of data for this period. More importantly, I have significantly extended the classification of goods and services in the demand system. Previous studies have used between 4 and 8 categories of goods, but I have classified the data into 17 categories. I have also addressed problems in previous studies about appropriate matching of data for prices and quantities for these categories. It should be noted that the raw data from which the new data set has been constructed is not readily available, and considerable resources have been invested in constructing this new data set. The second contribution is that this is the first study of urban household demand in Iran to use flexible functional forms (the AIDS model) to estimate a complete demand system. I survey the development of the use of flexible functional forms in applied demand studies.