MUGS element to analyse consumer behaviour. For this different d in this Chapter. Demand is an important , aspects of demand and consumer behaviour are discusse = 2.1.Basis of Demand Consumer's demand is an important element in the analysis of the theory of consumption. This is because consumption of the consumer depends on demand. For this the basis of demand is now analysed with the help of different objects. © 2.1.1. Definition of Demand—Concept of Demand: In common sense, demand means the desire to get any goods or services, But in economics, mere desire cannot be called demand because here demand means effective demand. The effective demand or demand is tLat amount of desire which is supported by the money power of the consumer. For example, a person have a desire to purchase a car. But that desire can be called demand if that ‘person have the financial ability to satisfy his desire. Thus the desire of the consumer to purchase commodity and the financial ability of the consumer are the two elements of demand. Price is the most important matter of demand. Because it determines the financial | ability of the consumer. Demand for any commodity cannot be said unless price of | the commodity is mentioned. For example, if it is said that what is the amount of demand for rice of an individual—from this question the demand for rice of any Person cannot be said. Because here the price is not mentioned, But if it is said that ey i hapa ea fe rice ne nu peiyidaal at price Rs. 15 per kg—then | for tice o son can be sai is sinc Person can be said. Because here the | Demand is also depends. on, time. For this. with; ese e 7 Mt lout mentioning time, it is not | possible to specify the amount of demand ‘accurately. For this if it is said that what ‘ isvrle Penis ‘ere price and time both are mentioned. i lus, at a fixed time and at a fixed price, th ity th consumer ready to purchase is called demand in Se sare © 2.1.2. Determinants of Demand : Demand i § factors. Total demand for commodity in the aac a depends on few | (1) Price of the commodity, (2) Income of the o F iti eg onsumer, (3) Pri lated commodities, () Taste - ie of the consumer, (5) all a garding future rice, Den i (8) Distribution of incomme SRE () Number of consDemand and Consumer Behaviour GF We now discuss these factors : x ‘ (1) Price of the commodity : The amount of commodity the consumer will purchase depends on the price of that ‘commodity. Generally it can be said that, other things remaining constant, the consumer purchases less of the commodity if the price hs rice of the aanke commodity is high and purchases more of the commodity if pr jodity is low. 3 =O) ee ‘of the consumer : The demand for the commodity depends on the income of the consumer. For normal commodity, other things remaining constant, the srvtumer purchases less if the income of the consumer decreases and purchases Mor Amount ofdemand Fig : 2.3. In Fig. 2.3 the amount of demand i Pe is plotted on the horizontal axi: ic apenas! on the vertical axis. DD, is the demand ee Betis on nen en the amount of demand is OM, when price is OP, ee mand decreas fom (OM, to OM, due to increase in price from OP, fon Te eres ce rier decrease to OM, due to further increase i ee op HO. So es Sop that oter tgs PR eo fom OF, Thus change in se ibe same demand curve DD, duc to change in price o Bet pplace on the same demand curve is the chan; Began: 10, price only wets Lt. Causes of Changes in Quantity gS Sa quantity demanded eae Quantity + Chan, i demanded are discussed below : srs. The main causes of changes Pe ocaiy nde are sid Blo anges in quantit) consumer co! utility : Othe: nsul it d i i comer COnITS, 8 POTS D aER COUT tn eeamemmaning the same. if+ of the comm deeeases continuous pepe ielity from the differes mnersion| ing to Prof, Marshall, the i law of diminishing i t will agree to pay lesse!Demand and Consumer Behaviour 29 (2) Income effect : Other things remaining constant, if the price of a commodity is decreased, the real income of the consumer is increased. This is because there exist ‘some excess money in the hands of the consumer even after the purchase of same amount of the commodity which the consumer purchases before the change in price. The amount of commodity the consumer purchases with this excess money is called ne er income effect. The demand for the commodity will increase due to income effect as of ‘a result of decrease in price if the commodity is a normal commodity. Therefore he income effect is the cause of changes in quantity demanded, int ‘Suppose the consumer purchases 10 kg. of rice when the price of rice is Rs. 10 per ve kg. So the expenditure of the consumer on rice is Rs. 100. If the price per kg. of rice he decrease to Rs. 8 and the consumer purchases 10 kg. of rice as before, the expenditure ed of the consumer will be Rs. 80. As a result of this Rs. 20 (Rs. 100 ~ Rs. 80) will remain in the hands of the consumer even after purchasing the same amount (10 kg.) of rice. The consumer may purchase larger amount of rice with the help of this surplus money Rs. 20. So income effect is the change in demand as a result of change in real income of the consumer due to change in the price of the commodity. So income effect is the cause of changes in quantity demanded. (3) Substitution effect : Relative price of any commodity is decreased due to fall in the price of that commodity. As a result the consumer purchases larger amount of the commodity in place of relatively more costly substitute commodities. On the other hand, relative price of the commodity is increased due to rise in the price of that commodity. As a result the consumer purchases larger amount of the relatively less costly substitute commodity in place of the commodity whose price has risen. This is called substitution effect. As a result of substitution effect the demand for the 4 commodity is always increased whose relative price is decreased. Therefore substitution effect is the cause of changes in quantity demanded. ‘Suppose the price of coffee decreases but the price of tea remain constant. So relative price of coffee compare to tea decreases, as a result the consumer purchases larger amount of coffee in place of tea. On the other hand, the consumer purchases larger amount of tea in place of coffee if the price of coffee increases. So the substitution effect is the change in demand of a commodity due to change in the y- relative price of that commodity other things remain constant. Therefore substitution # effect is the cause of changes in quantity demanded. y (4) Change in the number of consumer : According to Prof. Samuelson, the y number of consumer increases as a result of decrease in price of the commodity. This is because the consumers who were not able to purchase iie commodity previously, are P now purchased the commodity due to fall in price of the commodity. As a result the Z total demand for the commodity is increased. On the other hand, total demand for the g commodity is decreased due to increase in price of the commodity as some consumers Tare not able to purchase the commodity. These consumers are called marginal consumer, $ Thus marginal consumer is the cause of changes in quantity demanded. 2 For example, the price of TV was very high at the time of first introduction in the f market, As a result, the number of TV purchaser at that time was small. In due course 3 of time the number of TV purchaser is increased due to fall in the price of TV and y the demand for TV is also increase. Thus change in the number of seller is the cause of changes in quantity demanded.0 Microeconomics I and Statistics (8) Change in the use of commodity : Demand for any commodity is change 98° tesult of change in the Use of commodity due to change in the Pret Of the commodity. For example electricity is used in less essential work (e.8- eecca heater) due to fall in the price of electricity. As a result the number of use is increaseg and the demand for electricity i also increased. Therefore change in use of commodity is the cause of changes in quantity demanded. ‘4 2.1.5.2. Changes in demand—Shifting of the Demand Curve : Demand fo; ‘any commodity depends not only on the price of that ‘commodity but also depends on other factors. Price of a commodity remaining constant, demand for the commodity {is changed as a result of change in the other determinants of demand (e.g. income of the consumer, price of the related commodities, taste and liking of ‘the consumer etc.) ‘This is called changes in demand. The demand curve shifts its position due to changes in demand. Price of the commodity remaining constant, if the demand for the ‘commodity is inereased due to change in at least any one of the other determinants ‘of demand, the demand curve shifts othe right ofthe old demand curve, On the other hhand, due to these changes if demand is decreased the demand curve shifts to the lei of the old demand curve. This is shown in Fig. 2.4. ipsam Amount of demand In Fig 2.4, $ i We Hroniz: axis and price of the DD, is the initial demand fice remaining constant if the commodity increases, amodity or taste and liking for Asa result demand curve shifts D the same price. at the same price OP, ie., the 4 ount of demand On the other hand, price decreases for normal commodity or the the consumer will decrease his demand at th curve shifts from the initial position DD, to DD,. Here at the same price OP, ie, the demand is decreased demand curve shifts its position due to changes in deDemand and Consumer Behaviour 31 4 2.1.5.2.1. Causes of Changes in Demand—Causes of Shifting the Demand Curve s Changes in demand occur due to many factors. The main causes of changes in demand or shifting the demand curve are discussed below : (1) Income of the consumer : Changes in demand occur due to change in income of the consumer. For normal commodity, other things remaining constant, the consumer purchases more if the income of the consumer increases. As a result demand curve shifts to the right. On the other hand, consumer purchases less if the income of the consumer decreases. As a result demand curve shifts to the left. (2) Price of the related commodities : Related commodities mean substitute and complementary commodity. If a commodity can be used in place of other commodity then the two commodities are called substitute commodity. For example tea and coffee. In this case the demand for tea will increase due to increase in the price of coffee even though the price of the tea remain constant. As a result the demand curve shifts to the right and the opposite will happen if the price of coffee decreases, Further, the commodities which are used simultaneously are called complementary commodity. For example petrol and car. In this case the demand for car may decrease due to increase in the price of petrol even though the price of car remains constant, As a result the demand curve shifts to the left. The opposite will happen if the price of petrol is decreased. Thus changes in demand occur due to change in price of the related commodities. (3) Taste and liking of the consumer : Changes in demand occur due to change in taste and liking of the consumer, For example due to change in taste and liking of the consumer in West Bengal, shalwar takes the place of the sari iie. demand for shalwar increases. This means the demand for a particular commodity is increased due to increase in taste and liking towards that commodity. As a result the demand curve shifts to the right. The opposite will happen if the taste and liking of the commodity for a particular commodity decreases, (@) Conception of the consumer regarding future price : Conception of the consumer regarding future pricejis also the cause of changes in demand. For example if the consumer assumes that the price of the commodity will increase in future, the demand for the commodity generally be greater at present for future, use. As a result the demand curve shifts to the right. The opposite will happen if the consumer assumes that the price of the commodity will decrease in future, (S) Change in number of consumer : Changes in demand occur due to change in the number of consumer. For example, the demand for a commodity is generally increased if the number of consumer for that commodity increases. As a result the demand curve shifts to the right. The opposite will happen if the number of consumer for a commodity decreases. (6) Change in the amount of money supply If there is an increase in money Supply of the economy, the purchasing power of the people is increased. As a result of this the demand for the cmmodity is incteased-and the demand curve shifts to the right. The opposite will happen if the amount of money supply decreases. ‘4 2.1.5.3 Difference Between Changes in Quantity Demanded and Changes in Demand : At a fixed time and at a fixed price the amount of commodity the consumer ready to purchase is called demand. Demand may change in two ways. One is the ‘changes in quantity demanded and the other is the changes in demand.Microeconomics I and Statistics demand incol f the consumer, price of the relatey the consumer etc. remain constant the demand fo, the price of the commodity is increased and reased as the price of the commodity is d from one point to another point on the same demand ent on the same demand curve is the changes in quantity demanded ‘Thus changes in quantity demanded is the expansion and contraction of demand. The antity demand are law of diminishing marginal utility ff changes in qu: stitution effect, change in the number of consumer, chonge in 32 ‘According to the law 0 commodities, taste and liking of ‘ty is decreased aS me Of As a result the ‘consumer moves curve. The mover income effect, sul use of commodity etc. ‘On the other hand, price of the commodity remaining constant demand for the commodity is changed asa result of change in the othe determinants of demand (c. fevome of the consumer, price of the related commodities, taste and liking of income etc). Ths is changes in demand. The demand cof" shifts its position < oranges in demand. Price of the commodity remaining constant, if the demand the commodity is increased due to change in at least any one of the other determinants ie femand, the demand curve shift tothe right of the ofd demand curve. On the other rte to these changes if demand is decreased the demand cH" shifts to the left ven ain causes of changes in demand are income of the consuniis price of the er eesipics, usta and fiking of the consumer, conception of the canee regarding future price, change in the number of consumer, change in the amount of money supply etc. ney SUPP cult of changes in quantity demanded consumer moves from one plat: tp amuitor place on the same demand curve but as a resulfof changes in demand demand curve of the consumer changes its position. Further in case of changes in emg” demanded price of the commodiy changes Keeping other determinants c! Saar femain constant. But in ease of changes in demand other determinants of demand change Keeping price of the commodity remain constant. _ '¢ 2.1.6. Derivation of Individual demai fixed time the different amount of ae he oe ae je called individual demand. The sum of all the SE ARTE aREE omar ict vonand. Ata fixed time, the different amount of d ae capressed in a schedule then the schedule is called de ee “The demand schedule is of two types. One is indivi mand schedule. sot a ean cl vidual demand schedule and the i At a fixe > different amount of . different price when ex, i commodity a consum: a demand_ schedule, ee es pridos! commodity is shown in Table 2.1 : ‘dual demand schedule for a normal Table 2.1 : Individual Demand Sc