Page 88 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Unit-4: Ordinal Utility Theory: Indifference Curve Approach

(a) Some consumers think from their heart rather than from their pocket. Notes
A mother checks quality of the shoes only by its price while buying shoes for her child. The high
price means high quality and so high demand. Does this sentiment match with the theory of
demand which represents the opposite relation between price and demand of quantity? Answer
is ‘definitely not’.
But this behaviour is an exception and not a term. Some mothers also behave as their sentiments,
while some mothers think before buying a product from her mind and so buys more quantity
of product on lesser price. So for a product the sloping of demand curve can be upward, but for
most of the consumer it would be negative. If the sentimental consumer buys some percentage of
market products, the demand curve would be downward or negative; however, this is positive
for some sentimental consumer.
(b) Sometime all customers can buy more quantity of product on its high price for showing their
erratic or unstable behaviour. Sometimes the demand of theory does not match with the
behaviour of customers. But it should not be judged directly that the theory of demand is
unsuccessful. This type of unstable behaviour is cancelled for these erratic consumers by those
customers who are normal behaviour customers.
2. Demand and Taste Changes: Taste is not a quantitative variable. The effect of this on a product’s
demand is impossible. We can only assume this. But the guessing sticks a question mark over theory
of demand. This also sticks question mark on that rule which describes the relation between price
and quantity of demand.

Illustration

See this situation in Fig. 4.41. This figure represents an assumption that the income of customer and
other prices (or the price of related goods) are stable. Fig. 4.41 produces two possibilities:
Possibility 1: The demanded quantity is positively linked with price, so the movement of point ‘a’ to
point ‘b’ on demand curve ‘d ’ is like Giffen’s goods or subjects.
3
Possibility 2: The taste of customer changes if the price of product increases. So the point ‘a’ has changed on
point ‘b’ due to the movement of demand curve d to d . This is the situation or example of normal goods.
1
2
Fig. 4.41

Y

d
3

Price b

a
d
2
d
1
O X
Quantity

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