Price line (or) Budget line is represented by set of indifference curve depends on his money income and price level.

The Law of demand was first stated by Augustin Cournot in 1938. Later it was refined and elaborated by Alfred Marshall.
The law of demand says as "the quantity demanded increases with a fall in price and diminishes with a rise in price" - Marshall.

Consumption is defined as "the use of goods and services for satisfying wants". Consumption is the beginning of economic science. In the absence of consumption there is no production', exchange or distribution. Consumption is also an end of production.

(i) Perfectly Elastic Demand (E_p = \(\infty\))
(ii) Perfectly Inelastic Demand (E_p = 0)
(iii) Relatively Elastic Demand (E_p > 1)
(iv) Relatively Inelastic Demand (E_p < 1)
(v) Unitary Elastic Demand (E_p = 1)

Budget line is a line showing different combinations of two goods which a consumer can attain at his given Income and Market price of the goods.

(i) Giffen goods: Sir Robert Giffen explained the exceptional nature of inferior goods. So these inferior goods (eg) ragi are called Giffen goods.
(ii) When the price of an inferior good falls, the poor will buy less and vice versa.
(iii) It is an exception to the law of demand.

(i) Consumer's surplus = potential price - actual price (or)
(ii) Consumer's surplus = what a person is willing to pay - what he actually pays (or)
(iii) Consumer's surplus = TU - (P x Q)

(i) Cardinal approach of Marshall- utility is measured by cardinal numbers such as 1,2,3
(ii) Ordinal approach of Hicks and Allen- utility can be compared or ranked or ordered such as I,II,III.

(i) Want satisfying power of a commodity is called utility.
(ii) It is measured in utils.

F. W. Edgeworth and Vilfredo Pareto criticised the Cardinal Utility Approach. It is otherwise called "Indifference Curve Approach". J. R. Hicks and R.G.D. Allen Approach. J. R. Hicks in his book "Value and Capital" gave a final shape to this "Indifference Curve Analysis". 
Scale of Preference: This theory is also based on scale of preference. A rational consumer usually prefers the combination of goods which gives him maximum level of satisfaction. Thus, the consumer can arrange goods and their combination in order of their satisfaction.
Such an arrangement of combination of goods in the order of level of satisfaction is called the "Scale of Preference".
Assumptions:
(i) It assumes that the consumer possesses 'complete information' about all the relevant aspects of economic environment.
(ii) Consumer behaves rationally.
(iii) It also assumes 'continuity'. This means that the consumers are capable of ordering or ranking all combination of goods.
(iv) The consumer is not interested in anyone commodity as that utility analysis, but is a combination of goods.
(v) It assumes that the consumer has before him in indifference map for a pair of commodities.
(vi) The prices of these goods are given in the market and are assumed to be constant.

(i) According to Marshall," The excess of price which a person would be willing to pay a thing rather than go without the thing, over that which he actually does pay is the economic measure of this surplus satisfaction".
(ii) Consumer's surplus = potential price - actual price.

Utility is defined as the power of commodity or a service to satisfy a human want.
a. Total Utility: Total Utility refers to the sum of utilities of all units of a commodity consumed. For example, if a consumer consumes ten biscuits, then the total utility is the sum of satisfaction of consuming all the ten biscuits.
b. Marginal Utility: Marginal Utility is the addition made to the total utility by consuming one more unit of a commodity. For example, if a consumer consumes 10 biscuits, the marginal utility is the utility derived from the 10th unit. It is nothing but the total utility of 10 biscuits minus the total utility of 9 biscuits.
Thus MU_n = TU_n - TU_n-1
Where
MU_n = Marginal Utility of 'nth' commodity.
TU_n = Total Utility of n units.
TU_n-1 = Total Utility of n-1 units.
c. Relationship between Marginal Utility and Total Utility:

Marginal Utility	Total Utility
(i) Declines	Increases
(ii) Reaches zero	Reaches maximum
(iii) Becomes negative	Declines

(i) A consumer wants to spend his limited income on apple and orange.
(ii) He will be in equilibrium when he gets maximum satisfaction.

\(\mathrm{K}=\frac{M \mathrm{U_A}}{\mathrm{P_A}}=\frac{M U_O}{\mathrm{P_O}}\)
If \(\frac{MU_A}{P_ A}\) is less than \(\frac{M U_O}{P_O}\) he would transfer money from apple to orange till both are equal.

Characteristics
Wants are unlimited
(i) Wants are countless and various in kinds.
(ii) When one want is satisfied another want arises.
Wants become habits
(i) When a man starts reading newspaper in the morning it becomes a habit.
Wants are satiable
(i) We can satisfy particular wants at a given time.
(ii) When one feels hungry, he takes food and that want is satisfied.
Wants are alternative
(i) There are alternative ways to satisfy a particular want (eg) idly, dosa.
Wants are competitive
(i) There is competition among wants.
(ii) So we have to choose more urgent wants and satisfy them first.
Wants are complementary
(i) Satisfaction of a particular want requires the use of more than one commodity. (eg) car and petrol.
Wants are recurring
(i) Some wants occur again and again. For ex. if we feel hungry, we take food and satisfy our want.
(ii) But after some time we again feel hungry and want food.

Introduction: J.R.Hicks end R.G.D.Allen refined the Indifference Curve Approach in 1934. Later, in 1939 J.R.Hicks in his book "Value and Capital" gave a final shape to this "Indifference Curve Analysis". This theory is also based on scale of preference.
Assumption:
i. The consumer is rational and his aim is to derive maximum satisfaction.
ii. Utility can be ranked or compared or ordered. by ordinal number such as I, II, III and so on.
iii. The Indifference Curve Approach is based on the concept "Diminishing Marginal Rate of Substitution".
iv. The consumer is consistent. This assumption is called as the assumption of transitivity. If the consumer prefers combination A to B and B to C, then he should prefer A to C. If A>B and B>C, then A>C.
Indifference Schedule:
Indifference Schedule is a table which shows the different combination of two goods that gives equal satisfaction to the consumer.

Indifference Schedule
Apple	Orange
1	20
2	15
3	12
4	10
5	9

Table has five combination of two commodities Apple and Orange. This schedule is called as "Indifference Schedule". He will neither be better off nor whose off which ever combination he 4 chooses.
An indifference curve:

Different combination of two commodities (as found in Indifference Schedule) can be presented in a diagram. Then consumer gets different points and when such points are connected, a curve is obtained. The said curve is called as "Indifference Curve".
An indifference curve is the locus of all combinations of commodities from which the consumer derives the same level of satisfaction. It is also called "Iso-Utility Curve" or Equal Satisfaction Curve".
Explanation:
X axis represents apple and Y axis represents orange. Point 'R' represents combination of 1apple and 20 oranges., at 'S' 2 apples and 15 oranges and at 'T' 3 apples and 12 oranges. Similarly UKV points are obtained. These five points give the same level of satisfaction. The consumer will be neither better off nor worse off ln choosing any one of these points. When one joins all these five points (RS, T) U and V one can get the Indifference Curve 'IC'.

Introduction:
(i) The law of diminishing marginal utility was extended and is called Law of Equi marginal utility
(ii) Law of substitution or Law of consumer's Equilibrium or Gossen's II law or law of maximum satisfaction.
Definition:
Marshall, "If a person has a thing which he can put to several uses, he will distribute it among these uses in such a way that it has the same marginal utility in all. For, if it had a greater marginal utility in one use than another, he would gain by taking away some of it from the second use and applying it to first.
Assumption
(i) Consumer is rational and wants maximum satisfaction.
(ii) Utility is measurable in cardinal numbers.
(iii) Marginal utility of money is constant.
(iv) Income of the consumer is given.
(v) There is perfect competition.
(vi) Price is given.
(vii) Law of diminishing marginal utility operates
Explanation:
(i) The consumer has Rs. 11.
(ii) He wants to spend it on apple ( Rs 1 each) and orange (Rs. 1 each)
(iii) He will be in equilibrium only when he gets maximum satisfaction ie.
\(\mathrm{K}=\frac{\text { Marginal utility of apple }}{\text { Price of apple }}=\frac{\text { Marginal utility of orange }}{\text { Price of orange }}\)
If is \(\frac{\mathrm{MU_A}}{\mathrm{P_A}}\) less than \(\frac{\mathrm{MU_O}}{\mathrm{P_O}}\) he would transfer money from apple to orange till it is equal.
He should buy 6 units of apple & 5 units of oranges. He gets (92 + 58) = 150 units satisfaction.
\(\frac{\mathrm{MU_A}}{\mathrm{P_A}}=\frac{\mathrm{MU_O}}{\mathrm{P_O}}=\frac{4}{1}=\frac{4}{1}\)

Apple				orange
Units of Commodities	Total Utility	marginal Utility	Total Utility	marginal Utility
1	25	25	30	30
2	45	20	41	11
3	63	18	49	8
4	78	15	54	5
5	88	10	58	4
6	92	4	61	3

Explanation:
(i) X axis shows amount of money spent
(ii) Y axis shows marginal utility of apple and orange.
(iii) If consumer spends Rs.6 on apple and Rs.5 on orange MU will be equal.
(iv) ie. AA₁ = BB₁ = 4 = 4. So he gets maximum utility.
Criticisms:
(i) Utility cannot be measured.
(ii) No consumer compares the utility and disutility from each unit of the commodity while buying it.
(iii) This law cannot be applied to durable goods.
Conclusion:
(i) The law of equi marginal utility is an improvement over the law of diminishing marginal utility because it can be used for many commodities consumed at the same time.

Introduction:
(i) The law of demand was first stated by Augustin Cournot.
(ii) It was refined by Alfred Marshall.
Definition:
Marshall - "The quantity demanded increases with a fall in price and diminishes with a rise in price".
Samuelson - "People will buy more at lower price and buy less at higher prices, other things remaining the same".
Assumptions:-
(i) The income of the consumer remains constant.
(ii) The taste, habit and preference of the consumer remain the same.
(iii) Price of other related goods is constant.
(iv) No substitute for the commodity.
(v) The demand for that commodity is continuous
(vi) No change in the quality of the commodity.
If there is a change in one of these above assumptions the law will not operate.
Demand schedule
Price Quantity demanded 5 1 4 2 3 3 2 4 1 5 Demand curve

Explanation:
(i) X axis represents quantity demanded
(ii) Y axis represents the price.
(iii) DD is the demand curve.
It slopes downward from left to right - when price falls, demand expands and vice versa.
Market demand:
The market demand curve shows the addition of the demand curve of the buyers A, B and C at the same price.

Like the individual demand curve, the market demand curve is at a price, at a place and at a time. It has a negative slope.
Determinants of demand:
1. Change in taste and fashion
2. Change in weather
3. Change in expectations
4. Change in savings
5. Taxation and subsidy
6. State of trade activity
7. Advertisement
8. Change in income
9. Change in population
Exceptions:
Giffen Paradox (inferior good)
(i) When the price of an inferior good falls, the poor will buy less. (eg.) ragi.
Veblen or Demonstration effect
(i) Rich people buy some goods because it gives social prestige (eg.) diamond.
Ignorance
(i) Some consumers think that the product is superior if the price is high. So they buy more at a higher price.
Speculative effect
(i) When the price increases they buy more of it because of the expectation that the price will increase still further. (eg.) stock market.
Fear of shortage:
(i) During emergency or war, people expect shortage of a commodity and so buy more.
Conclusion: Thus the law of demand explains the inverse relationship between price and quantity demanded.