I like the blue one. How much does it cost?
I was trying to figure out why “blaue” isn’t capitalized, since it seems to be used as a noun here. But I guess it’s because it’s actually an adjective, and we’re omitting the noun because this is informal speech? I guess this is roughly equivalent to using “one” in English, to avoid using the actual noun:
Ich mag das blaue (Kleid) = I like the blue one (the blue dress)
Exactly.
But just like the English “the blue one”, it is not restricted to informal speech.
It is always used when the context is clear, e.g. because the object was mentioned in the sentence before.
An example from an operation manual:
“Das Gerät hat zwei Eingangsbuchsen; im normalen Betrieb ist die gesichterte vorzuziehen.”
The device has two input sockets; for normal use the fused one should be preferred."
It would be very ungainly to repeat the “Eingangsbuchse” here.