THIS PPT EXPLAINS DEMAND CONCEPT AND ELASTICITY CONCEPT. IT WILL BE USEFUL FOR BOARD EXAMINATION AND FOR TEACHERS, TEACHING AID.

1. Theory Of Consumer Behaviour
Class 12 – CBSE
Economics (Part – 2)

2. Synopsis
1. Demand
2. Demand Function
3. Demand Function Symbols
4. Factors Affecting Demand
5. Substitute Goods
6. Complementary Goods
7. Demand Schedule and Demand Curve
8. Individual Demand curve
9. Market Demand Curve
10. Law of Demand
11. Assumptions of Law of Demand
12. Causes of Downward Sloping Demand
13. Exceptions to the Demand Law
14. Linear Demand
15. Movement and Shift in Demand

3. Demand
Demand is defined as the quantity of a commodity that
a consumer is willing and able to purchase in the
market Keeping other factors constant. Example: A
consumer demands 5 kg of sugar in a month at a price
of Rs 40/ kg.
Demand can be classifies as:
Individual Demand: Demand of an individual person.
Market Demand: Demand of all the households.

4. Demand Function
The functional relationship between the demand for a
commodity and the factors affecting demand is termed as
demand function.
There are 2 types of demand Function:
Individual Demand Function: It shows how demand for a
commodity in the market is related to its factors.
Dx= f(Px,Pr,Y,T,E)
Market Demand Function: It shows how market demand for a
commodity in the market is related to its determinants.
Dx= f(Px,Pr,Y,T,E,N,Dy,Pc)

5. Demand Function Symbols
Dx = Demand for commodity X
f = Functional relation
Px = Price of the commodity X
Pr = Price of related goods
Y = Consumers’ Income
T = Taste and preferences of consumer
E = Consumers expectation regarding goods
N = Population size
Dy = Distribution of income
Pc = Composition of population

6. Factors Affecting Demand
1) Price of the commodity[Px] It means, as price increases, quantity
demanded falls due to decrease in the satisfaction level of consumers.
2) Income of the consumer[Y] Demand for a commodity is also
affected by income of the consumer. However, the effect of change in
income on demand depends on the nature of the commodity under
consideration.
i. If the given commodity is a normal good, then an increase in income
leads to rise in its demand, while a decrease in income reduces the
demand. Example, Full cream milk, grains, etc.
ii. If the given commodity is an inferior good, then an increase in
income reduces the demand, while a decrease in income leads to rise
in demand. Example, Poor quality food, coarse cereals, etc.

7. Factors Affecting Demand
3) Price of Related Goods [Pr] Demand for the given
commodity is also affected by change in prices of the
related goods.
Related goods are of two types: Substitute goods and
complementary goods.
i. Substitute Goods -Substitute goods are two goods that
could be used for the same purpose. If the price of one
good increases, then demand for the substitute is likely to
rise. Therefore, substitutes have a positive cross elasticity of
demand.

8. Factors Affecting Demand
ii. Complementary Goods: In economics, a
complementary good or complement is a good with a
negative cross elasticity of demand, in contrast to a
substitute good.
This means a good's demand is increased when the
price of another good is decreased. Conversely, the
demand for a good is decreased when the price of
another good is increased.

9. Factors Affecting Demand
4) Taste and Preferences[T] Tastes and preferences of
the consumer directly influence the demand for a
commodity. They include changes in fashion, customs,
habits, etc. If a commodity is in fashion or is preferred
by the consumers, then demand for such a commodity
rises.
5) Expectations [E] If the price of a certain commodity
is expected to increase in near future, then people will
buy more of that commodity than what they normally
buy. For example, if the price of petrol is expected to
rise in future, its present demand will increase.

10. Factors Affecting Demand
6) Distribution of Income [Dy] In case of equal
distribution, demand from all sections of society will
rise.
7) Size of Population [N] Higher population implies
greater market demand.
8) Composition of Population[Pc] If population of a
country has greater percentage of youth, then market
demand for branded clothes, bikes, etc rises.

11. Substitute Goods

12. Complementary Goods

13. Demand Schedule & Demand Curve
The tabular presentation of price and quantity
demanded is called demand schedule and a demand
curve is the graphical representation of the demand
schedule.
Its is of two types:
1. Individual Demand Schedule and its Curve
2. Market Demand Schedule and its Curve

14. Individual Demand Schedule and Its
Curve

15. Market Demand Schedule and its
Curve

16. Law of Demand
The law of demand states that other factors being
constant (cetris peribus), price and quantity demand of
any good and service are inversely related to each
other. When the price of a product increases, the
demand for the same product will fall.

17. Assumptions Of the Law of Demand
1. Taste and preferences of the consumers remain
constant.
2. There is no change in the income of the consumers.
3. Prices of the related goods do not change.
4. No expectation of further changes in the supply of a
commodity.
5. No change in the distribution of income.
6. No change in population.

18. Causes for Downward Sloping Demand Curve
Or Why does law of demand operate
Law of Diminishing Marginal Utility : For every additional unit
to be purchased the consumer is willing to pay less price.
Income Effect Change : Change in own price of a commodity
causes a change in the real income of the consumer.
Substitution Effect : It refers to substitution of one commodity
for the other when one becomes relatively cheaper due to
change in relative prices.
Size of Consumer Group : When price of a commodity falls, it
attracts new buyers who can afford to buy it, hence quantity
demanded rises.
Different uses : Example Milk is used for making curd, cheese
and butter. So if its price falls, demand for milk will expand.

19. Exceptions to the Law of Demand
Giffen Goods : A good where higher price causes an
increase in demand (reversing the usual law of
demand). The increase in demand is due to the income
effect of the higher price outweighing the substitution
effect.
The idea is that if you are very poor and the price of
your basic foodstuff (e.g bread) increases, then you
can’t afford the more expensive alternative food (meat)
therefore, you end up buying more bread because it is
the only thing you can afford.

20. Exceptions to the Law of Demand
Conspicuous Consumption/ Veblen Goods : The law of
demand will not apply in case of costly items such as
Diamond. These commodities will be demanded, even
if the prices have gone up very high.
Conspicuous Necessities : Certain commodities are
necessities so even if there price rises the demand does
not fall. Example : Automobiles

21. Exceptions to the Law of Demand
Ignorance : When consumer is not aware about the
competitive price of the commodity, he may purchase
more of it even at higher price.
Future Expectation : If the price of a particular good
falls and it is expected to fall further, consumer may not
buy that product immediately.
Necessities : Law does not applies on necessities such
as medicine, salt, flour, etc.

22. Linear Demand Curve

23. Movement along the Demand Curve
or Change in Quantity Demanded
It is caused by
change in price
of the goods,
keeping other
factors constant.
It is of 2 types;
Extension In
Demand and
Contraction In
Demand.

24. Shift In demand Curve or Change in
Demand
A shift in the
demand curve
is caused by the
change in
factors other
than the price
of the good. It
is of two types
Increase in
Demand and
Decrease in
Demand.

25. Elasticity of Demand
It refers to the degree of responsiveness in demand
due to change in price of a commodity or income of the
consumer or price of related goods.
It can be of 3 types:
1. Price Elasticity of Demand
2. Income Elasticity of Demand
3. Cross Elasticity of Demand

26. Price Elasticity of Demand
Price elasticity of demand (PED or Ed) is a measure to
show the responsiveness, or elasticity, of the quantity
demanded of a good or service to a change in its price,
ceteris paribus. It is a quantitative approach.

27. Determinants of Price Elasticity of
Demand

28. Methods Of Measuring PED
1. Percentage or Proportionate Method: Ed is a
negative number because price and quantity
demanded are inversely related.

29. Methods Of Measuring PED
2. Total Outlay or Expenditure Method: Elasticity of
Demand can be measured in terms of changes in
total expenditure due to change in the price of a
commodity. TE = P * Q

30. Methods Of Measuring PED
3. Geometric or Point
Method: It measures
elasticity of demand
at different points on
demand curve. It is
also called Point
Elasticity Method.
ED = Lower Segment
of Demand Curve/
Upper Segment of
Demand Curve.

31. Thank You!
Lesson by
Anjali Kaur Suri
TGT Maths, PGT Economics
M.A. Economics, M.Com (Finance), PGD Banking & Finance, B.A. Hons (Economics), B.Ed (Maths & SST), NISM,
NSDL and IELTS certified.
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