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Theory of Consumer Behaviour - Demand 2020-2021

The document discusses the theory of consumer behavior and determinants of demand. It explains that demand is the quantity of goods a consumer is willing to buy at a given time and price. Market demand is the sum of all consumer demands. There are several factors that affect consumer demand, including: (1) the price of the good itself, as demand increases with lower prices and decreases with higher prices; (2) the prices of substitute and complementary goods; (3) the consumer's income level and whether the good is a normal or inferior good; and (4) other factors like tastes, number of consumers, income distribution, and future expectations. The key principle is the law of demand - that demand is negatively correlated with price

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Shivam Mutkule
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548 views2 pages

Theory of Consumer Behaviour - Demand 2020-2021

The document discusses the theory of consumer behavior and determinants of demand. It explains that demand is the quantity of goods a consumer is willing to buy at a given time and price. Market demand is the sum of all consumer demands. There are several factors that affect consumer demand, including: (1) the price of the good itself, as demand increases with lower prices and decreases with higher prices; (2) the prices of substitute and complementary goods; (3) the consumer's income level and whether the good is a normal or inferior good; and (4) other factors like tastes, number of consumers, income distribution, and future expectations. The key principle is the law of demand - that demand is negatively correlated with price

Uploaded by

Shivam Mutkule
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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2.

THEORY OF CONSUMER BEHAVIOR


(DEMAND)
 Utility - Satisfying power of a commodity is called utility.
 Demand : the quantity of goods a consumer is willing to buy at a given period
of time and at a given price.
 Market Demand : sum of the demand of all the buyers of a commodity at a
given price during a period of time.
DETERMINANTS OF DEMAND or Factor affecting demand
1. Own price of the good - Price of a commodity is an important factor that
determines demand for a commodity. When price of a commodity rises,
consumers buy less and when prices fall, demand increases.
2. Price of related goods
a) Substitute - Substitute goods can be interchangeably used. For example,
tea and coffee are substitute goods. If tea is dearer, one can use coffee and
vice versa. When price of a substitute for a good falls, the demand for that
good declines and when price of substitute rises, the demand for that good
increases.
There is positive relation between price of substitute good and quantity
demand of a good.
3. b) Complementary - Complementary goods are demanded together as
bread and butter or car and petrol. In case of complementary goods, the
change in the price of any of the two goods also affects the demand of the
other. For instance, if demand for two-wheelers fall, the demand for petrol
also goes down.
There is negative relation between price of complementary good and
quantity demand of a good.
4. Income of the consumer
a) Normal – When the income of a consumer increases demand for normal
good increases and when income decreases demand for normal good also
decreases. There is positive relationship between income and demand of
normal good.
5. b) Inferior - When the income of a consumer increases demand for inferior
good decreases and when income decreases demand for Inferior good
increases . There is negative relationship between income and demand of
inferior good.
6. Taste and preference - These are important factors, which affects the
demand for a product. If tastes and preferences are favourable, the demand
for a good will be large. On the other hand, when any good goes out of
fashion or people’s tastes and preferences no longer remain favourable, the
demand decreases.
7. Number of consumer special influences will affect the demand for
particular goods. The demand for umbrellas is high in rainy Season but low
in summer season comparatively, the demand for air conditioners will rise in
hot weather.
8. Distribution of Income – depending upon the purchasing power of
consumer, demand for good rises or decreases simultaneously.
9. Miscellaneous - Future expectation about price and income also affect the
demand for a commodity is present. Suppose, if we expect a rise in price in
the near future, then we’ll increase demand in present even at the same price.

 Law of demand : other thing being constant, when there is increase in price
demand falls and with decrease in price demand rises.

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