Theory of Consumer Behaviour | Class 12 Economics Notes
By ConceptScroll Team · Published on 17 July 2026 · 4 min read
Theory of Consumer Behaviour – this guide gives you a concise, exam-ready overview of Theory of Consumer Behaviour from Class 12 Economics, written by ConceptScroll editors and reviewed against the latest NCERT textbook.
2.6 ELASTICITY OF DEMAND
Price elasticity of demand measures how responsive the quantity demanded of a good is to a change in its price. It is defined as the percentage change in quantity demanded divided by the percentage change in price. Elasticity can be elastic (>1), inelastic (<1), or unit elastic (=1). For example, if a 40% increase in price causes a 20% decrease in quantity demanded, elasticity is 0.5 (inelastic). Elastic goods have demand highly responsive to price changes, often luxuries; inelastic goods have demand less responsive, often necessities. Along a linear demand curve, elasticity varies at different points: it is infinite at the vertical intercept, zero at the horizontal intercept, and one at the midpoint. Elasticity can also be measured geometrically on the demand curve. The chapter discusses constant elasticity demand curves such as perfectly inelastic (vertical), perfectly elastic (horizontal), and unit elastic (rectangular hyperbola). Factors influencing elasticity include availability of substitutes and nature of the good. Elasticity also affects total expenditure: if demand is elastic, expenditure moves opposite to price changes; if inelastic, expenditure moves with price changes.
📊 Diagram: See table_5, figure_19, figure_32, figure_33, figure_34, figure_35, figure_36, and table_6: Table 2.5 shows price and quantity changes for elasticity calculation; Figures illustrate elasticity along demand curves and constant elasticity curves; Table 2.6 summarizes elasticity and expenditure changes.
🧪 Activity: Example 2.2: Calculation of price elasticity of demand for bananas with given price and quantity changes.
🔗 Connection: Leads to exercises and application of elasticity concepts in consumer behaviour.
Table on page 21 (3×2)
| Price Per banana (Rs.): P | Quantity of bananas demanded : Q |
|---|---|
| Old Price : $P_{1} = 5$ | Old quantity: $Q_{1} = 15$ |
| New Price : $P_{2} = 7$ | New quantity: $Q_{2} = 12$ |
Table on page 25 (7×9)
| Change in Price (P) | Change in Quantity demand (Q) | % Change in price demand | % Change in quantity | Impact on Expenditure = P×Q | Nature of price Elasticity of demand | e_{e} | ||
|---|---|---|---|---|---|---|---|---|
| 1 | ↑ | ↓ | +10 | -8 | ↑ | Price Inelastic | ||
| 2 | ↑ | ↓ | +10 | -12 | ↓ | Price Elastic | ||
| 3 | ↑ | ↓ | +10 | -10 | No Change | Unit Elastic | ||
| 4 | ↓ | ↑ | -10 | +15 | ↑ | Price Elastic | ||
| 5 | ↓ | ↑ | -10 | +7 | ↓ | Price Inelastic | ||
| 6 | ↓ | ↑ | -10 | +10 | No Change | Unit Elastic |
Frequently asked questions
1. What do you mean by the budget set of a consumer?
The budget set of a consumer is the set of all possible combinations of two goods that the consumer can afford to buy with a given income and prices of the goods. It includes all bundles of goods whose total cost is less than or equal to the consumer's income.
2. What is budget line?
The budget line is a graphical representation of all combinations of two goods that a consumer can buy by spending the entire income. It shows the maximum quantity of one good that can be purchased for any given quantity of the other good, given the prices and income.
3. Explain why the budget line is downward sloping.
The budget line is downward sloping because to consume more of one good, the consumer must give up some quantity of the other good due to limited income. This trade-off causes a negative slope.
4. A consumer wants to consume two goods. The prices of the two goods are Rs 4 and Rs 5 respectively. The consumer's income is Rs 20. (i) Write down the equation of the budget line. (ii) How much of good 1 can the consumer consume if she spends her entire income on that good? (iii) How much of good 2 can she consume if she spends her entire income on that good? (iv) What is the slope of the budget line?
(i) Let x1 and x2 be quantities of good 1 and good 2 respectively. Prices: p1 = Rs 4, p2 = Rs 5, Income M = Rs 20. Budget line equation: 4x1 + 5x2 = 20.
(ii) If entire income is spent on good 1, then x2 = 0. 4x1 = 20 ⇒ x1 = 20/4 = 5 units.
(iii) If entire income is spent on good 2, then x1 = 0. 5x2 = 20 ⇒ x2 = 20/5 = 4 units.
(iv) Slope of budget line = -p1/p2 = -4/5 = -0.8.
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Clear NCERT-aligned notes on बाज़ार संतुलन for Class 12 Economics.
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Clear NCERT-aligned notes on बाज़ार संतुलन for Class 12 Economics.