Chapter 2: Theory of Consumer Behaviour

📘 NCERT Says: Consumer ka choice problem study karte hain. Hum simplify karne ke liye maan lete hain ki sirf 2 goods hain: Bananas (x₁) and Mangoes (x₂).

💡 Easy Explanation:

• Consumption Bundle: Goods ka koi bhi combination. Example: (5,10) means 5 bananas and 10 mangoes.
• Preferences: Consumer kya pasand karti hai.
• Budget: Consumer kya afford kar sakti hai (prices & income par depend).

2.1 What is Utility?

• 📘 NCERT Definition: Utility is the want-satisfying capacity of a commodity.
• 💡 Easy Explanation: Kitna satisfaction milta hai kisi cheez ko use karne se.
• 🤔 Example: Chocolate khane se jo khushi milti hai, woh uska utility hai.
• ⚠️ Point: Utility subjective hoti hai (har kisi ke liye alag).

2.2 Cardinal Utility Analysis (Utility ko Number de sakte hain)

Maan lete hain utility ko measure kar sakte hain. Example: "Is shirt se mujhe 50 units utility milti hai."

📊 Measures of Utility:

1. Total Utility (TU): Kisi fixed quantity se milne wala total satisfaction.
2. Marginal Utility (MU): Ek additional unit consume karne se TU mein change.

🧠 Formula: MUₙ = TUₙ - TUₙ₋₁

Also: TUₙ = MU₁ + MU₂ + ... + MUₙ

⭐ Law of Diminishing Marginal Utility

• 📘 NCERT Definition: Jab aap kisi commodity ka consumption badhate jaate hain, to har additional unit se milne wali marginal utility ghatti jaati hai (baki sab constant rakhkar).
• 💡 Easy Explanation: Pehla pizza ka slice bahut mazedaar lagta hai, dusra thik-thak, teesra se pet bhara lagne lagta hai!

📊 Table 2.1 Explained:

Units TU MU
1 12 12
2 18 6
3 22 4
4 24 2
5 24 0
6 22 -2

📈 Demand Curve Derivation (Single Commodity)

• Law of Diminishing MU hi Law of Demand ka reason hai.
• 💡 Logic: Har additional unit kam valuable lagti hai, isliye consumer uske liye kam price pay karega. Isliye Demand Curve Downward Sloping hoti hai.

2.3 Ordinal Utility Analysis (Utility ko Rank kar sakte hain)

Real life mein hum utility ko number nahi dete, bas bolte hain "A, B se behtar hai".

Isi idea par based hai ye analysis.

📉 Indifference Curve (IC)

• 📘 NCERT Definition: A curve showing all those combinations of two goods that give the consumer the same level of satisfaction.
• 💡 Easy Explanation: Woh saare points jinko consumer equally pasand karta hai.
• 📊 Diagram 2.3 Explained:
  • Graph mein X-axis par Bananas, Y-axis par Mangoes.
  • Jo curve points A, B, C, D ko jodta hai, woh IC hai.
  • Har point par utility same hai.

📐 Marginal Rate of Substitution (MRS)

• 📘 NCERT Definition: The rate at which the consumer is willing to substitute one good for the other so that her total utility remains the same.

🧠 Formula: MRS = |ΔY / ΔX| (Y ko kitna de kar woh X le sakta hai)

• 🤔 Example: 1 banana pane ke liye agar 2 mango chhodne hain, to MRS = 2.

⭐ Law of Diminishing MRS

• 📘 NCERT Says: Jab aap banana (X) badhate jaate hain, to har additional banana ke badle mein aap kam mangoes (Y) sacrifice karne ko taiyar hote hain.
• 💡 Easy Explanation: Jab aapke paas bahut saare bananas ho jaate hain, to ek aur banana pane ke liye aap sirf 1 hi mango denge, 2 nahi.

📊 Table 2.2 Explained:

Combination Bananas (X) Mangoes (Y) MRS
A 1 15 -
B 2 12 3:1
C 3 10 2:1
D 4 9 1:1

📈 Shape of Indifference Curve

• Diminishing MRS ki wajah se IC Convex to the origin hoti hai.

🔥 Monotonic Preferences

• 📘 NCERT Definition: Consumer hamesha us bundle ko prefer karega jisme kisi ek good ki quantity zyada ho aur doosri kam na ho.
• 💡 Easy Explanation: "Jyada achha hai, kam nahi." Bundle (10,10) bundle (10,9) se behtar hai.

🗺️ Indifference Map

• 📘 NCERT Definition: A family of indifference curves.
• 💡 Easy Explanation: Ek saath kayi ICs ka graph.
• 📊 Diagram 2.5 Explained: Jo IC upar hai, woh behtar hai. Arrow direction batata hai ki higher IC = higher utility.

✅ Features of Indifference Curve

1. Slopes Downwards Left to Right: ✅
   • Ek good badhani hai to doosri kam karni padegi, tabhi utility same rahegi.
2. Higher IC = Higher Utility: ✅
   • 📊 Diagram 2.7 Explained: Jab bananas badh jaate hain (mangoes same), to consumer higher IC par chala jaata hai (B se C).
3. Two ICs Never Intersect: ✅
   • 📊 Diagram 2.8 Explained: Agar intersect karenge to logically galat result aayega. Maan lo woh point jahan intersect kar rahe hain, uski utility same hogi dono curves par, lekin ek bundle mein clearly zyada goods hain. Ye possible nahi hai.

3.1 Budget Set & Budget Line

• 📘 NCERT Definition (Budget Set): The collection of all bundles that the consumer can buy with her income at the prevailing market prices.
• 📘 NCERT Definition (Budget Line): The line consisting of all bundles which cost exactly equal to the consumer's income.

🧠 Budget Constraint Formula: p₁x₁ + p₂x₂ ≤ M

🧠 Budget Line Formula: p₁x₁ + p₂x₂ = M

🤔 Example 2.1:

• Income (M) = ₹20, p₁ = ₹5, p₂ = ₹5.
• Affordable Bundles: (0,0), (0,1)... (4,0). (3,3) afford nahi kar sakta.

📊 Diagram 2.9 Explained (Budget Set):

• Budget Line: A straight line jiske neeche aur uspar sab points affordable hain.
• Intercepts:
  • Horizontal Intercept: M/p₁ (Sirf bananas kharid sakta hai)
  • Vertical Intercept: M/p₂ (Sirf mangoes kharid sakta hai)
• Slope of Budget Line: -p₁/p₂
• 💡 Meaning: Market mein banana ke badle mein mango substitute karne ki rate.

🧮 Derivation of Slope (Page 10)

1. Start with: p₁x₁ + p₂x₂ = M
2. Change karte hain: p₁(x₁ + Δx₁) + p₂(x₂ + Δx₂) = M
3. Subtract karte hain: p₁Δx₁ + p₂Δx₂ = 0
4. Rearrange: Δx₂/Δx₁ = -p₁/p₂

Slope = -p₁/p₂

3.2 Changes in the Budget Set

A. Change in Income (M)

• M badhega: Budget Line parallel bahar ki taraf shift hogi. (Diagram 2.10b)
• M ghatega: Budget Line parallel andar ki taraf shift hogi. (Diagram 2.10a)
• Slope same rahega (kyunki prices same hain).

B. Change in Price of one good

• Price of Banana (p₁) badhega:
  • Budget Line steeper ho jayegi (Slope |p₁/p₂| badhega).
  • Horizontal intercept (M/p₁) ghatega.
  • Vertical intercept same rahega. (Diagram 2.11a)
• Price of Banana (p₁) ghatega:
  • Budget Line flatter ho jayegi (Slope |p₁/p₂| ghatega).
  • Horizontal intercept (M/p₁) badhega.
  • Vertical intercept same rahega. (Diagram 2.11b)

• Consumer ka goal hai apni income mein highest possible indifference curve par pahunchna.
• Optimum Point: Woh point jahan Budget Line, Indifference Curve ko tangentially touch karti hai.
• 📊 Diagram 2.12 Explained:
  • Point C par budget line IC ko touch kar rahi hai.
  • Is point se upar wale curves afford nahi kar sakta.
  • Is point se neeche wale curves bekaar hain (kam utility).

⭐ Golden Condition for Consumer's Optimum

• At Optimum Point: MRS = Price Ratio (p₁/p₂)
• 💡 Logic:
  • MRS: Consumer karna chahta hai kitna substitute.
  • Price Ratio: Market karne deta hai kitna substitute.
  • Dono equal hone par hi consumer satisfied hoga.
• 🤔 Example: Agar MRS = 2 (2 mango dekar 1 banana lena chahta hai) lekin Market Price Ratio = 1 (1 mango dekar 1 banana mil raha hai), to consumer banana kharidkar fayda uthayega. Aisa tab tak karega jab tak MRS, Price Ratio ke equal na ho jaye.

5.1 Demand Curve & Law of Demand

• 📘 NCERT Definition (Demand): The quantity of a commodity that a consumer is willing to buy and is able to afford, given prices of goods and consumer’s tastes and preferences.
• 📘 NCERT Definition (Demand Curve): A graphic presentation of various quantities of a commodity that a consumer is willing to buy at different prices.
• ⭐ Law of Demand: Other things remaining constant, as the price of a good increases, its quantity demanded decreases, and vice-versa. (Inverse relationship).

🧮 Deriving Demand Curve from IC & Budget Line (Page 16)

1. Start with price P₁'. Consumer optimum at C, quantity X₁'. Ye demand curve ka pehla point hai.
2. Price ghatao to P̄₁. Naya optimum at D, quantity X̄₁ (zyada). Ye dusra point hai.
3. Aise hi price ghatate jaao, quantity badhti jaati hai. In sab points ko mila kar Downward Sloping Demand Curve ban jaati hai.

5.2 Substitution Effect & Income Effect

Price ghatne par demand kyun badhti hai? Do effects ke karan:

1. Substitution Effect: Banana sasta ho gaya, to consumer mango chhodkar zyada banana kharidega (substitute karega).
2. Income Effect: Price ghatne se consumer ki purchasing power badh jaati hai (Real Income badh jaati hai). Woh zyada banana aur zyada mango dono kharid sakta hai.

5.3 Normal & Inferior Goods

• Normal Good: Jiske liye demand income ke saath badhti hai. (Example: Fruits, Good Clothes)
• Inferior Good: Jiske liye demand income ke saath ghatti hai. (Example: Coarse Cereals, Low Quality Goods)
• ⚠️ Point: Ek good kisi ke liye normal ho sakta hai aur kisi ke liye inferior. Example: Low quality cereal garib aadmi ke liye normal good hai (income badhi to kharida), ameer aadmi ke liye inferior good hai (income badhi to use chhod dega).

5.4 Substitutes & Complements

• Substitutes: Aise goods jo ek dusre ki jagah use kiye ja sakte hain.
  • Demand Relation: Ek ke price badhne par doosre ki demand badh jaati hai.
  • 🤔 Example: Tea & Coffee. Coffee mehengi hogi to log zyada chay piyenge.
• Complements: Aise goods jo saath mein use kiye jaate hain.
  • Demand Relation: Ek ke price badhne par doosre ki demand ghat jaati hai.
  • 🤔 Example: Car & Petrol. Petrol mehenga hua to car ki demand ghat jayegi.

5.5 Shifts in Demand Curve vs. Movement Along the Curve

• 📊 Diagram 2.17 Explained:
  • Movement Along the Curve (Panel a): Sirf good ki apni price change hone par hota hai.
  • Shift of the Curve (Panel b): Price ke alawa koi aur factor change hone par hota hai (Income, Other goods' prices, Tastes).
• Shifts in Demand Curve (Diagram 2.16):
  • Rightward Shift (Demand Badhi):
    • Normal good ki income badhi.
    • Substitute good ka price badha.
    • Complementary good ka price ghata.
    • Tastes & Preferences iske favour mein change hue.
  • Leftward Shift (Demand Ghati):
    • Normal good ki income ghati.
    • Substitute good ka price ghata.
    • Complementary good ka price badha.
    • Tastes & Preferences iske against change hue.

• 📘 NCERT Definition: The total demand of all consumers in the market at a particular price.
• 🧮 Derivation: Individual demand curves ko horizontally sum karte hain.
• 📊 Diagram 2.18 Explained:
  • Har price par, saare consumers ki quantity demanded ko jod do.
  • Horizontal Summation: Individual demand curves ko side-by-side jodna.

🧮 Adding Two Linear Demand Curves (Page 20)

d₁(p) = 10 - p (for p ≤ 10)
d₂(p) = 15 - p (for p ≤ 15)
Market Demand (Dₘ):
· If p ≤ 10: Dₘ = (10-p) + (15-p) = 25 - 2p
· If 10 < p ≤ 15: Dₘ = 0 + (15-p) = 15 - p (Consumer 1 kuch nahi kharidta)
· If p > 15: Dₘ = 0

• 📘 NCERT Definition: A measure of the responsiveness of the demand for a good to changes in its price.

🧠 Formula:
e_D = (Percentage Change in Quantity Demanded) / (Percentage Change in Price)
e_D = (ΔQ/Q) / (ΔP/P) = (ΔQ/ΔP) * (P/Q)

🤔 Example 2.2:

• P₁=5, Q₁=15; P₂=7, Q₂=12
• %ΔQ = [(12-15)/15]*100 = -20%
• %ΔP = [(7-5)/5]*100 = 40%
• |e_D| = 20/40 = 0.5 (Inelastic Demand)

7.1 Degrees of Price Elasticity

1. Elastic Demand (|e_D| > 1): %ΔQ > %ΔP (Luxury goods)
2. Inelastic Demand (|e_D| < 1): %ΔQ < %ΔP (Necessity goods)
3. Unitary Elastic Demand (|e_D| = 1): %ΔQ = %ΔP

7.2 Elasticity along a Linear Demand Curve

🧠 Formula (Linear Demand q = a - bp): e_D = - (bp) / (a - bp)

• 📊 Diagram 2.19 Explained:
  • Mid-point par elasticity = 1.
  • Mid-point se upar (high price) par elasticity > 1 (Elastic).
  • Mid-point se neeche (low price) par elasticity < 1 (Inelastic).
  • X-axis touch karne par elasticity = 0.
  • Y-axis touch karne par elasticity = ∞.

7.3 Constant Elasticity Demand Curves (Diagram 2.20)

• (a) Perfectly Inelastic (Vertical Line): |e_D| = 0. Price kuch bhi ho, demand fixed.
• (b) Perfectly Elastic (Horizontal Line): |e_D| = ∞. Ek fixed price par unlimited demand, usse thoda sa price badha to demand zero.
• (c) Unitary Elastic (Rectangular Hyperbola): |e_D| = 1. Har point par elasticity 1 hoti hai. PQ = Constant (Total Expenditure hamesha same rehta hai).

7.4 Factors Determining Elasticity

1. Nature of Good: Necessity = Inelastic, Luxury = Elastic.
2. Availability of Substitutes: Zyada substitutes = Zyada Elastic.

7.5 Elasticity & Expenditure (Very Important for Exams)

• Total Expenditure (TE) = Price (P) × Quantity (Q)

📊 Table 2.5 Summary:

| Price Change | |e_D| | Effect on Total Expenditure |
|--------------|------|----------------------------|
| Increases    | > 1 (Elastic) | Decreases            |
| Increases    | < 1 (Inelastic) | Increases            |
| Increases    | = 1 (Unitary) | Unchanged            |
| Decreases    | > 1 (Elastic) | Increases            |
| Decreases    | < 1 (Inelastic) | Decreases            |
| Decreases    | = 1 (Unitary) | Unchanged            |

• Consumer's Problem: Choose the best affordable bundle.
• Utility: Satisfaction from consumption.
• Indifference Curve: Shows combinations giving equal satisfaction.
• Budget Line: Shows all combinations that exhaust income.
• Consumer's Optimum: Where budget line is tangent to an indifference curve (MRS = Price Ratio).
• Demand Curve: Shows relationship between price and quantity demanded.
• Law of Demand: Inverse relationship between price and quantity demanded.
• Elasticity of Demand: Measures responsiveness of quantity demanded to a change in price.

1. Utility: Want-satisfying capacity of a commodity.
2. Marginal Utility (MU): Change in total utility due to consumption of one additional unit.
3. Law of Diminishing Marginal Utility: As consumption increases, the marginal utility derived from each additional unit declines.
4. Indifference Curve: A curve showing different combinations of two goods which give the consumer the same level of satisfaction.
5. Marginal Rate of Substitution (MRS): The rate at which the consumer is willing to substitute one good for the other so that her total utility remains the same.
6. Monotonic Preferences: Consumer always prefers a bundle that has more of at least one good and no less of the other good.
7. Budget Set: Collection of all bundles that the consumer can buy with her income at prevailing prices.
8. Budget Line: The line consisting of all bundles which cost exactly equal to the consumer's income.
9. Demand: The quantity of a commodity a consumer is willing to buy and able to afford at given prices and preferences.
10. Law of Demand: Other things constant, the demand for a good is inversely related to its price.
11. Normal Good: A good whose demand increases with an increase in consumer's income.
12. Inferior Good: A good whose demand decreases with an increase in consumer's income.
13. Substitutes: Goods that can be used in place of each other.
14. Complements: Goods that are used together.
15. Price Elasticity of Demand: A measure of the responsiveness of the demand for a good to changes in its price.