In the present smart grid framework, Demand side management (DSM) has been incorporated on the target of bridging the gap between the demand and the supply and gives a way for energy efficiency. The reduction of carbon emissions and conservation measures can be completely eradicated. Demand Response (DR) is indeed a valise of measures in order to improve the energy system at the consumer side and has gained importance in residential sector. In this paper a Demand Response algorithm considering the residential consumer is done with the consideration of electricity market prices and stochastic optimization is adapted for minimizing the peak demand in a day. The electricity market price framework is done with the residential consumers in India by optimizing the appliances which are categorized as deferrable and non deferrable loads. The DR algorithm is simulated for 10 different consumers considered using the pricing schemes like flat pricing. The numerical results using the optimization technique and the pricing scheme is discussed which underlines the need of dynamic pricing schemes in residential sector. © 2016 IEEE.