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I like to travel in Rural India and know more about the diversities of Indian cultures, I like to read books on educational philosophy. I belive in psycological development along with the funtional development of Students.I like to work with average and below average students, Specialy with dropout and educational mental block.Most of the time i conclud by own obervation and guessing. I am the founder member of Sawant Foundation which works for the averness of people regarding govt policies, schemes programmes. . Chart……………………………………………………………………………………………………. DEMAND ANALYSIS AND THEORY OF CONSUMER’S CHOICE Ccc

  • What is demand in an economics?

“When desire is backed by willingness and ability to pay for it that is known as demand in economics” Here, important point in economics is that the time element. That is desire should be satisfied within given period of time.

Law of demand All other things (# ink ) being constant if price of a commodity changes then the demand for that commodity also changes. Thus the price is the major determinant of demand So the demand function is: Dx= f(Px) ^Px ------------- ^Qdx Rise in Px -----leads to --------------fall in Qdx ---------and vice-versa Fall in Px----------------rise in Qdx If Px is bar----------------------Qdx bar There is inverse or opposite relationship between price and quantity demanded of a commodity.

Demand Schedule of an Individual Consumer

Demand Curve of an Individual Consumer

Diagrammed of Demand curve

Consumer Behaviour

Whether the price is the only determinant of demand? Ans. NO. But price is the major of the determinant of demand Along with price there are many determinants of demand They are price of its close substitutes, income of a consumer, wealth, size of population, fashion, taste of a consumer for that commodity or services etc. Therefore new demand function is : Dx = f (Px, Py,____Pn, Y , W, A F Pz T etc ) Dx ----Demand for a commodity Px ------Price of a commodity Py --------Price of a Y good which is close substitute for X good Y --------Money income of a consumer W -----------Wealth of a consumer Diff Bet W and Y( # link) Al l the above factors plays important role in the determination of demand. But among these entire factors price plays very important role. But law of demand says all other things being constant and when price of a commodity changes ……. Here we trying to establish the relationship between price and the quantity demanded of a commodity. Now our equation of demand function is : Qdx = f (Px,/ Py, ………Pn, Y, W,F A T Zp etc. ) All these are determinants of demand (#Link) Here Px is variable all other things are constant ( # link ) When demand changes due to change in price of that commodity that phenomenon is known as variation in demand whereas when demand changes due factors other than its price that is known as changes. Therefore law of demand is concerned with the phenomenon that is VARIATION IN DEMAND which accompanied by Rise and Fall or known as expansion and contraction in demand and not with CHANGE IN DEMAND which is accompanied by increased and decreased in demand ( # Digramatic Representation)

What consumer’s choice reflects? What is the importance of demand in economy?

Types of demand.

  • Direct demand and Derived demand.
  • Individual demand and Market demand.


  • Why does demand curve slop downward?
  • Exceptions to the Law of demand.

                   *Types of demand analysis (Flow Chart)
                *Qualitative                                                                         * Quantitative 
                        Law of Demand                                                                            Elasticity of Demand

It shows only direction It shows how much theoretically useful practically Usefull Introspective Behaviouristic Price Income Cross C Surplus DF Self Questioning Actual Observations of CBH Cardinal & Ordinal Cardinal Ordinal MUA ICA HLWO RPT Principle LDMU LDMRSxy Conclusion is based on guessing Therefore misleading Not scientific

There are different theories of demand put forwarded by different economists: 1* Marginal Utility Analysis OR Cardinal Utility Approach ……………by Alfred Marshall (year ) 2*Indifference Curve Analysis OR Ordinal Utility Approach…by J R Hicks & R G D Allen (1939) 3*Revealed Preference Theory OR Behaviourist Ordinalist Approach… Paul Samuelson ( ) 4*Hick’s Logical Weak Ordering by Prof J R Hicks (1956)

  • Cardinal Utility Analysis or Marginal Utility Analysis.
  • What is Utility?
  • Principle of Law of diminishing Marginal Utility.
  • Assumptions, Diagrams
  • Equi-Marginal Utility Analysis.
  • Principle equation and explanation.


Then concept of consumers’ surplus is originally developed by prof. Dupit. Then it is propounded by Alfred Marshall. According to Marshall there are several low price goods ‘These goods are daily part of our consumption. These goods are indispensible in our day today life . These goods are daily part of our consumption. Consumer cannot deal his day without the consumption of such goods.

According to Marshall in the event of non availability of such goods consumer is ready to pay much higher price than what he pays daily. He cannot remain without consumption of such goods. It shows consumer gets the satisfaction than what he pays normal times. It means he gets surplus satisfaction (extra) than he makes the payment for it. Because any rational consumer will pay the maximum price for any commodity which is exactly equal to the satisfaction derived from that commodity. Generally try to pay the price any commodity which is less than the satisfaction derived from it. He rarely pays the price which is greater than the satis faction derived from it.


MUx = Px at the most Marshall’s equilibrium Position MUx > PX generally disequilibrium position MUx < Px Rarely disequilibrium CONSUMER’S SURPLUS = MAXIMUM PRICE READY TO PAY --- ACTUAL PRICE PAID FOR IT Scheduled of Consumer’s Surplus Units MU Maximum price ready to pay Actual price Paid Consumer’s Surplus 1 1o 10 2 8 2 8 8 2 6 3 6 6 2 4 4 4 4 2 2 5 2 2 2 0 Max.Units Tux Max price ready Actual Price Paid Total Consumer’s Surplus 5 30 30 10 20 Consumer’s Surplus in Money Terms (C.S.) C. S- = Maximum Price Ready to Pay – Actual Price Paid 20 = 30 - 10 Consumer’s Surplus in Utility Terms

C.S.  = TUxn  =Px (MUxn)


  • Diagram
  • Usefulness or Application of Consumer Surplus

Water Diamond Paradox /Evaluating loss and benefit from the tax /Evaluating gains from a Subsidy/Use in cost benefit analysis

  • Limitations