UNIT 2 (SESSION 2023-24)

CLASS XI DATE: 22/05/2023

SUBJECT: ECONOMICS
CONSUMER BEHAVIOUR AND DEMAND (13 Marks)

Mode of collaboration: Interactive & Explanatory

Theory of Demand
• DEMAND: Quantity of the commodity that a consumer is able and willing to
purchase in a given period and at a given price.
• DEMAND SCHEDULE: It is a tabular representation which shows the relationship
between price of the commodity and quantity purchased.
• DEMAND CURVE: It is a graphical representation of demand schedule.
• INDIVIDUAL DEMAND: Demand by an individual consumer.
• DETERMINANTS OF DEMAND :
1. Own Price of the commodity,
2. Income of the consumer – Inferior goods and normal goods
3. Price of related goods – Substitutes and Complementary goods
4. Taste and Preference – Favorable or Unfavorable
5. Expectations of future price change

EXCEPTIONS TO THE LAW OF DEMAND: In certain cases the demand curve slopes up
from left to right, i.e, it has a positive slope. Under certain cases consumers buy more when
the price of a commodity rises and buys less when price falls.

i) Giffen goods: Demand of an inferior commodity falls with a fall in its price, and rises with
a rise in its price. Change in price leads to change in the real income of the consumer.
Therefore when the real income of the consumer increases because of a fall in the price he
substitutes an inferior commodity for the superior commodity and similarly when his real
income falls because of a rise in the price, he begins to consume more of the inferior
commodity. The resultant demand curve will move upwards which is contrary to our
assumption of the downward slope of the demand curve.(income effect is highly negative and
price effect is positive.

ii) Emergencies: Emergencies like war, famine etc. negate the operation of the law of
demand. At such times households behave in an abnormal way. Households accentuate
scarcities and induce further price rise by making increased purchases even when at higher
price.

iii) Ignorance: Consumers ignorance is another factor that, at times, induces him to purchase
more of a commodity at a higher price. This is especially so when the consumer is haunted by
the phobia that a higher priced commodity is better in quality than a lowered price one.
iv) Conspicuous consumption. A few goods like diamonds etc. are purchased by the rich and
wealthy sections of the society, because the prices of such goods are so high that they are
beyond the reach of the common man. More of these commodities are demanded when their

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prices go up very high. On the other hand, with a fall in the price of such articles, their
demand falls (VEBLEN GOODS). The law of demand does not operate here.

v) Change in fashion: A change in fashion and tastes affects the market for a commodity.
When a broad toe shoe replaces a narrow toe, no amount of reduction in price of the latter is
sufficient to clear the stocks. Broad toe, on the other hand will have more customers even
though the price may be going up.

• DEMAND FUNCTION: Dx = f( Px, Y, Pr, T)

• NORMAL GOOD: Goods which are having positive relation with income. It means
when income rises, demand for normal goods also rises.
• INFERIOR GOOD: Goods which are having negative relation with income. It
means less demand at higher income and vice versa.
• SUBSTITUTE GOODS: Increase in the price of one good causes increase in
demand for other goods. E.g., tea and Coffee
• COMPLEMENTARY GOODS: Increase in the price of one good causes decrease in
demand for other goods. E.g.:- Petrol and Car
• LAW OF DEMAND: Other things remain constant, demand for good contracts with
rise in price and vice versa.

QUESTIONS TO BE ATTEMPTED:

Q1. Define negative & positive cross price effect.

Q2. Explain any three factors affecting the demand.
Q3. What is meant by demand?
Q4. In brief, explain some exceptions to the law of demand.
Q5. What is the difference between Giffen and inferior goods?

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