Ch 2Theory of Consumer Behaviour — Class 11 Economics, concept-first.

This chapter studies how an individual consumer decides to spend her income across the different goods available to her -- what economists call the problem of choice.

A consumer’s decision to demand a particular commodity is driven by the satisfaction — or utility — they expect to get from it. Utility is defined as the want-satisfying capacity of a commodity.

Cardinal utility analysis is built on a simple but powerful assumption: utility — the satisfaction a consumer gets from a good — can be measured in numbers.

The cardinal utility approach, though simple, has a fundamental flaw: it assumes utility can be measured in numbers like height or weight.

A consumer does not have unlimited resources. She has a fixed amount of money — her income — to spend on the goods she wants.

A consumer's choices are not unlimited. She is constrained by two things: her income and the prices of the goods she wants to buy.

The budget set is not fixed. It depends on three things: the price of good 1, the price of good 2, and the consumer's income. Whenever any of these changes, the set of affordable bundles changes too.

The budget set contains every bundle the consumer can afford. But which specific bundle will she actually choose? Economics assumes the consumer has well-defined preferences over all possible bundles…

In the previous section, we saw how a consumer chooses her optimal bundle — the combination of goods that gives her the highest possible satisfaction given her budget.

When we hold constant the prices of other goods, the consumer's income, and her tastes and preferences, the quantity of a good she chooses optimally depends only on its own price.

The demand curve for a good shows how much of it a consumer wants to buy at different prices. The textbook derives this curve step by step using the consumer's optimisation problem — the same indiffer…

For most goods, the quantity a consumer chooses to buy rises when her income rises and falls when her income falls. Such goods are called normal goods.

So far, the analysis of a consumer's choice has focused on the price of the good itself and the consumer's income.

The demand curve we studied earlier is drawn on a very specific set of assumptions. It assumes that three things are held constant: the consumer's income, the prices of other goods (related goods like…

The demand curve is drawn under the ceteris paribus condition — everything except the good's own price is held fixed.

The demand curve we studied in the previous section belonged to a single consumer. But in the real world, markets consist of many consumers.

The law of demand tells us that price and quantity demanded move in opposite directions. But it does not tell us how much quantity changes when price changes.

A linear demand curve is written as , where and are positive constants. The slope of this curve is constant: for every one-unit change in price, quantity demanded changes by units.

The price elasticity of demand for any good is not a fixed number — it depends on two broad factors: the nature of the good itself and the availability of close substitutes.

When a consumer buys a good, the total amount spent on it is simply the price paid multiplied by the quantity bought. This total outlay is called expenditure on the good:

The key terms introduced in this chapter, gathered in one place for quick revision — a compact glossary for this CBSE Class 12 Economics chapter.

- Utility and Cardinal vs. Ordinal Approach: Utility is the satisfaction from consuming a good. The cardinal approach (Marshall) assumes utility is measurable in utils; the ordinal approach (Hicks-All…

Sample papers and previous-year board questions for this subject.