Lesson 9: Concept of Demand & Consumer Behavior
Demand depicts consumer behavior in the market. Understanding the difference between desire and demand, the law of demand, individual vs. market demand, and price/income determinants is central to microeconomics.
Meaning of Demand & Demand vs. Desire
Demand for a good is defined as the quantity of the good purchased at a given price at a given time period.
- Price of the commodity (e.g., ₹50 per kg)
- Quantity of the commodity bought (e.g., 2 kg)
- Time period (e.g., per week, per month)
Desire is merely a wish to possess a good, regardless of purchasing power. Demand is desire backed by ability and willingness to pay the price.
Example: Varsha wishes to buy mangoes. If she cannot pay ₹50/kg, it is a desire. When she pays ₹50/kg and buys 2 kg for last week, it becomes demand.
Determinants of Individual Demand
Inverse relationship. Buyers buy more at lower price and less at higher price, ceteris paribus.
• Substitutes (Tea/Coffee, Coke/Pepsi): Direct relationship ($P_{coffee} \uparrow \Rightarrow D_{tea} \uparrow$).
• Complements (Car/Petrol, Pen/Ink): Inverse relationship ($P_{petrol} \uparrow \Rightarrow D_{car} \downarrow$).
• Normal Goods (Fruits, Full cream milk): $Y \uparrow \Rightarrow D \uparrow$ (Direct).
• Inferior Goods (Jowar, Bajra, Toned milk): $Y \uparrow \Rightarrow D \downarrow$ (Inverse).
Goods currently in fashion or preferred by buyers (e.g., jeans/tops) experience high demand; out-of-fashion goods face declining demand.
The Law of Demand & Downward Slope Reasons
Law Statement:
"If price of a commodity falls, its quantity demanded increases; and if price of the commodity rises, its quantity demanded falls, other things remaining constant (ceteris paribus)."
| Price of Mangoes (₹ per Kg) | Quantity Demanded (Kg per week) | Observation / Consumer Response |
|---|---|---|
| ₹ 80 | 0.5 kg | Highest price $\rightarrow$ Minimum purchase |
| ₹ 70 | 1.0 kg | Price falls $\rightarrow$ Demand expands |
| ₹ 60 | 1.5 kg | Steady expansion |
| ₹ 50 | 2.0 kg | Normal budget level |
| ₹ 40 | 2.5 kg | Lower price $\rightarrow$ Higher real income |
| ₹ 30 | 3.0 kg | Lowest price $\rightarrow$ Maximum demand |
As successive units are consumed, satisfaction derived decreases. Consumer is willing to pay less for additional units.
Price drop increases real purchasing power with the same money income, enabling buyer to purchase more quantity.
When commodity price falls, it becomes relatively cheaper than its substitutes, inducing consumers to substitute it for other goods.
Market Demand & Summation Matrix
Market Demand is the total quantity of a commodity that all individual buyers in the market are willing to buy at a given price and given time. It is derived by the horizontal summation of individual demand schedules.
| Price (₹/Kg) | Varsha (Kg) | Vibha (Kg) | Somya (Kg) | Market Demand (Varsha + Vibha + Somya) |
|---|---|---|---|---|
| ₹ 80 | 0.5 | 1.0 | 0.0 | 1.5 kg |
| ₹ 70 | 1.0 | 1.5 | 0.5 | 3.0 kg |
| ₹ 60 | 1.5 | 2.0 | 1.0 | 4.5 kg |
| ₹ 50 | 2.0 | 2.5 | 1.5 | 6.0 kg |
| ₹ 40 | 2.5 | 3.0 | 2.0 | 7.5 kg |
| ₹ 30 | 3.0 | 3.5 | 2.5 | 9.0 kg |
- Number of Buyers: More buyers in the market directly expands market demand.
- Income & Wealth Distribution: Wealth distribution favoring the rich increases demand for luxury/rich-preferred goods; favoring poor raises demand for necessities.
- Climatic Conditions: Seasons affect market demand (e.g., ice/coolers in summer, raincoats/umbrellas in rainy season, woolens in winter).
Key Economic Distinctions Table
Substitute Goods: Used in place of each other (Tea & Coffee, Coke & Pepsi). Price rise in one increases demand for the other (Direct Relationship).
Complementary Goods: Used together to satisfy a want (Car & Petrol, Ballpen & Refill). Price rise in one decreases demand for the other (Inverse Relationship).
Normal Goods: Demand increases as consumer income rises ($Y \uparrow \Rightarrow D \uparrow$). E.g., Fruits, full-cream milk, butter.
Inferior Goods: Demand decreases as consumer income rises ($Y \uparrow \Rightarrow D \downarrow$). E.g., Jowar, bajra, toned milk.