Theory of Consumer Behaviour Important Questions for Class 12 Economics Concept of Demand,Factors Affecting Demand and Law of Demand
1.Demand It refers to various amounts of a commodity that a consumer is ready to buy at different possible prices of the commodity, during a period of time.
2.Quantity Demanded If refers to the specific quantity of a commodity which is demanded during a particular period of time.
3.Market Demand It is the sum of individual demand at different price level at a particular period of time by different people.
4.Demand Schedule The table related to price and quantity demanded is called the demand schedule.
5.Individual Demand Schedule It is a table showing various quantities of a commodity, which an individual buyer is ready to buy at different possible prices of the commodity at a given point of time.
6.Market Demand Schedule It is a table showing various quantities of a commodity, which all the buyers in the market are ready to buy at different possible prices of the commodity at a given point of time.
7.Demand Curve It is a graphic presentation of demand schedule.
9.Market Demand Curve It is a graphical presentation of market demand schedule, i.e. a horizontal summation of individual demand curves.
10.Determinants/Factors Affecting Demand
(i) Price of the commodity (Px) (ii) Income of the consumers (y)
(iii)Price of related goods (Pr) (iv) Taste and preferences of the consumers (T)
(v) Expectations (E) (vi) Distribution of Income (Dy)
(vii) Size of population (Ps)
Note Factors (i) to (v) affect individual demand, hence considered under individual demand function, where as factors- (i) to (vii) affects market demand, hence considered under market demand function.
11.Demand Function It shows the relationship between demand for a commodity and its various determinants. Written as :
Dx = f(Px, Y, Pr, T, E, Dy, Ps) [Where Dx = Demand for good x]
12.Normal Goods These are the goods for which the demand is directly related to consumer’s income i.e. with rise in income demand rises and vice-versa, e.g. full cream milk, pulses, grains, etc.
13.Inferior Goods These are the goods for which the demand is inversely related to consumer’s income, i.e. with rise in income demand falls and vice-versa, e.g. coarse cereals, tonned milk, etc.
14.Substitute Goods These are the goods which can be substituted for each other, such as tea and coffee or ball pen and ink pen. In case of such goods, increase in the price of one causes increase in the demand for other, (i.e. direct relation between price of one good and demand of other good).
15.Complementary Goods These are those goods which complete the demand for each other and are therefore, demanded together in a fixed proportion, e.g. pen and ink, bread and butter, etc. A fall in price of one causes increase in demand of the other and vice versa.
16.Law of Demand The law states that other things remaining constant, quantity demanded of a commodity increases with a fall in its own price and diminishes with a rise in its own price, i.e. there exist a inverse relationship between price and quantity demanded. Geometrically, it is represented by a downward sloping demand curve.
17.Assumptions of the Law of Demand
(i)Tastes and preferences of the consumer remain constant.
(ii)There is no change in the income of the consumers.
(iii) Prices of the related goods do not change.
(iv)No change in the total assets.
(v)No change in population.
(vi)No expectation of further changes in the price of a commodity.
18. Causes for Downward Sloping of Demand Curve
(i) Law of Diminishing Marginal Utility (ii) Income effect
(iii) Substitution effect (iv) Size of consumer group ,
(v) Different uses
19.Exceptions to the Law of Demand
(i) Conspicuous consumption (ii) Giffen goods
(Hi) Ignorance of the buyers (iv) Conspicuous necessities
20.Movement Along a Demand Curve It occurs when changes in quantity demanded are related to changes in own price of the commodity keeping all other factors constant. When quantity demanded contracts in response to increase in price, it is called extension in demand.
21.Shift in Demand Curve It occurs when demand for a commodity is related to factors other than own price of the commodity. When more is demanded at the same price, there is rightward shift in demand curve (called increase in demand), when less is demanded at the same price, there is leftward shift in demand curve (called decrease in demand).
22.Giffen Good It is a special type of inferior good whose income effect is negative, but price effect is positive, i.e. demand increase with rise in price and vice versa.
23.Income Effect It refers to change in quantity demanded of a commodity when real income of the consumer changes owing to change in own price of the commodity.
24.Substitution Effect It refers to change in quantity demanded of commodity X when relative price of the commodity (Px/Py) changes owing to change in Px or Py.
Where Px is Price of goods X and Py is price of good y. –
25.Price Effect It refers to change in quantity demanded of a commodity owing to change in its own price, other things remaining constant. It includes both income effect and substitution effect.
26.Cross Price Effect It refers to effect of a change in price of commodity X on demand for commodity Y, when X and Y are related goods, i.e. either substitutes or complementary.
Previous Years Examination Questions
1 Mark Questions
1.What is market demand? (Delhi 2013)
Ans. Market demand is sum of individual demand at different price level at a particular period of time by different people.
2.What does a rightward shift in demand curve indicate? (All India 2013)
Ans. Increase in demand.
3.Give one reason for a shift in demand curve. (All India 2oi2)
Ans. Shift in demand curve occurs due to changes in other determinants of demand like price of related goods, income of the consumers, etc other than own price of the commodity.
4.State whether the following statement is true or false.
‘The demand for a commodity always increases with increase in the prices of other goods’. (All India 2011)
Ans. False, it is possible only in case of substitute goods.
5.What causes an upward movement along a demand curve? (All India 2011)
Ans. Increase in own price of the commodity causes an upward movement along a demand curve.
6.What is Law of Demand? (Delhi 2010)
Ans. Law of Demand states that other things remaining constant, quantity demanded of a commodity increases with a fall in its own price and diminishes with a rise in its own price. Geometrically, it is represented by a downward sloping demand curve.
7.What is meant by inferior goods in economics? (All India 2010,2009)
or
When is a good called an inferior good? (Delhi 2008C, 2006)
Ans. Inferior goods are the goods for which the demand is inversely related to consumer’s income, e.g. coarse cereals, tonned milk, etc.
Note There is no list of good which are normal or inferior, it depends on the level of consumer’s income.
8.What is meant by normal goods in economics? (Ml India 2010)
or
When is a good called a normal good? (Ad India 2008; Delhi 2006)
Ans. Normal goods are the goods for which the demand is directly related to consumer’s income, i.e. with rise in income demand rises and vice-versa e.g. full cream milk, pulses, grains, etc.
9.What is demand schedule? (All India 2008)
Ans. Demand schedule is a table showing the relationship between different quantities of a commodity to be purchased at different prices of that commodity.
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