Consumer Behaviour and Demand

A. Consumer’s equilibrium (Various Utility concepts)

B. Demand
1. Concept
2. Factors affecting demand
3. Law of demand
4. Elasticity of Demand
 Demand
Meaning and Definition of Demand
According to Benham: “The demand for anything, at a
given price, is the amount of it, which will be bought
per unit of time, at that price.”
According to Bobber, “By demand we mean the various
quantities of a given commodity or service which
consumers would buy in one market in a given period of
time at various prices.”

Requisites:
f. Desire for specific commodity.
g. Sufficient resources to purchase the desired commodity.
h. Willingness to spend the resources.
i. Availability of the commodity at
(i) Certain price (ii) Certain place (iii) Certain time.
 Kinds of Demand
1. Individual demand
2. Market demand

4. Income demand
- Demand for normal goods (price –ve, income +ve)
- Demand for inferior goods

4. Cross demand
- Demand for substitutes or competitive goods (eg.,tea &
coffee, bread and rice)
- Demand for complementary goods (eg., pen & ink)

5. Joint demand (same as complementary, eg., pen & ink)

6. Composite demand (eg., coal & electricity)
7. Direct demand (eg., ice-creams)
8. Derived demand (eg., TV & TV mechanics)
9. Competitive demand (eg., desi ghee and vegetable oils)
Factors Determining Demand - y
(i) Price of the commodity – Normally there is an inverse
relationship between the price of the commodity and the
quantity demanded. (Px)
(ii) Income of the Consumer – Determines the purchasing
power of the consumer. Generally, there is a direct
relationship between the income of the consumer and
demand. (Y)
(iii) Consumer’s taste and preference (T)
(iv) Price of related commodities (Pr)
(v) Consumer Expectation (expected change in price)
(v) Distribution of income
(vi) Size and composition of population
(vii) Advertising and Sales Promotion
(viii) Other Factors e.g., natural calamities

Qdx = f (Px, Pr ,Y , T, D, …)
 Demand Schedule
Demand Schedule: a tabular presentation showing different
quantities of a commodity that would be demanded at
different prices.

Types of Demand Schedules

Individual Demand Schedule Market Demand Schedule

Shows the various commodities

Shows various quantities of
a commodity that would be
purchased at different
prices by a household.
that would be purchased at
different prices by all the
buyers of that commodity. It
is composed of the demand
schedules of all the individuals
purchasing that commodity.
 Demand Curve
Prices
of apples

Quantity
Of apples
 Demand Curve
The demand curve slopes downwards from left to right
which indicates that there is an inverse relationship
between price and quantity demanded.

Demand Schedules for Apples

Price/kg Demand-A Demand-B Market(A+B)

30 4 3 7
25 6 5 11
20 9 8 17
15 13 12 25
10 17 15 32
 Demand Curve
Movement along demand curve Vs. Shift in demand curve:
Distinction between change in quantity demanded and
change in demand.

A. Change in quantity demanded – When quantity demanded

changes ( rise or fall ) as a result of change in price
alone, other factors remaining the same.

• Contraction/fall in quantity demanded

• Extension/Rise in quantity demanded

The change is depicted/ represented by the movement up or

down on a given demand curve. This does not require drawing a
new demand curve.
 Demand Curve
B. Change in demand – When the amount purchased of a
commodity rises or falls because of the change in
factors other than the price of the commodity. It is
called change in demand.

Types of Changes

Increase in demand. Decrease in demand

 Demand Curve
Why does the demand curve Slope Downwards
to the Right?

• Income Effect – An increase in demand on account of

increase in real income is known as income effect.
• Substitution Effect
• Increase in number of consumers
• Several uses of commodity
 Law of Demand
Prof. Samuelson: “Law of demand states that people will
buy more at lower price and buy less at higher prices,
others thing remaining the same.”
Ferguson: “According to the law of demand, the quantity
demanded varies inversely with price”.

Chief Characteristics:
5. Inverse relationship.
6. Price independent and demand dependent variable.
7. Income effect & substitution effect.
Assumptions:
No change in tastes and preference of the consumers.
• Consumer’s income must remain the same.
• The price of the related commodities should not change.
• The commodity should be a normal commodity
 Market Demand versus Individual
Demand

Market demand refers to the sum of all

individual demands for a particular good or
service.
Graphically, individual demand curves are
summed horizontally to obtain the market demand curve.
 Shifts in the Demand Curve

Change in Quantity Demanded

• Movement along the demand curve.
• Caused by a change in the price of the product.
 Changes in Quantity Demanded

A tax that raises the

price of ice-cream
cones results in a 1 B
movement along the
demand curve. A
2
D

0 4 8
 Shifts in the Demand Curve

• Consumer income
• Prices of related goods
• Tastes
• Expectations
• Number of buyers
 Shifts in the Demand Curve

Change in Demand
• A shift in the demand curve, either to the left or
right.
• Caused by any change that alters the quantity
demanded at every price.
 Shifts in the Demand Curve
Price of
Ice-
Cream
Increase
in demand

Decrease
in demand Demand
curve, D2
Demand
curve, D1
Demand curve, D3
0
Quantity of
Ice-Cream
 Shifts in the Demand Curve

Consumer Income
• As income increases the demand for a normal good
will increase.
• As income increases the demand for an inferior
good will decrease.
 Consumer Income
Normal Good
Price of
Ice- An increase
Cream in income...
3
Cone Increase in
2.50 Demand

2
1.50
1 D2
.50
D1
0 1 2 3 4 5 6 7 8 9 10 11
Quantity of ice cream cone
 Consumer Income
Inferior Good
Price
of Ice-
Cream An increase
Cone in income...

Decrease
In Demand

D1 D
0
Quantity of Ice Cream
Cone
 Shifts in the Demand Curve

Prices of Related Goods

• When a fall in the price of one good reduces the
demand for another good, the two goods are called
substitutes.
• When a fall in the price of one good increases the
demand for another good, the two goods are called
complements.
 Variables That Influence Buyers

Variable A Change in this Variable

Price Represent a movement along

the curve
Income Shifts the demand curve
Prices of related goods Shifts the demand curve
Tastes Shifts the demand curve
Expectations Shifts the demand curve
No. of Buyers Shifts the demand curve