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    Exceptions To The Law of Demand

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    Jenson Don
    There are several exceptions to the law of demand. Giffen goods are inferior goods where demand increases as price rises and decreases when price falls. Prestige goods like diamonds have demand that increases with higher prices due to increased prestige value. Demand may also not follow the law when consumers expect future price changes, fear shortages, have changes in income, follow changing fashions, or purchase basic necessities.

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    Exceptions To The Law of Demand

    Uploaded by

    Jenson Don
    90 views11 pages
    There are several exceptions to the law of demand. Giffen goods are inferior goods where demand increases as price rises and decreases when price falls. Prestige goods like diamonds have demand that increases with higher prices due to increased prestige value. Demand may also not follow the law when consumers expect future price changes, fear shortages, have changes in income, follow changing fashions, or purchase basic necessities.

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    Law of Demand

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    Exceptions to the Law of Demand

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    There are several exceptions to the law of demand. Giffen goods are inferior goods where demand increases as price rises and decreases when price falls. Prestige goods like diamonds have demand that increases with higher prices due to increased prestige value. Demand may also not follow the law when consumers expect future price changes, fear shortages, have changes in income, follow changing fashions, or purchase basic necessities.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    90 views11 pages

    Exceptions To The Law of Demand

    Uploaded by

    Jenson Don
    There are several exceptions to the law of demand. Giffen goods are inferior goods where demand increases as price rises and decreases when price falls. Prestige goods like diamonds have demand that increases with higher prices due to increased prestige value. Demand may also not follow the law when consumers expect future price changes, fear shortages, have changes in income, follow changing fashions, or purchase basic necessities.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 11

    Exceptions to the Law

    Of Demand
    Law Of Demand :
    The law of demand states that, other
    things remaining the same, the quantity
    demanded of a commodity is inversely related
    to its price.
    If a price of a commodity falls, the
    quantity demanded of it will rise, and if the
    price of the commodity rises, its quantity
    demanded will decline.
    Assumptions under which law of
    demand is valid
     No change in price of related commodities.
     No change in income of the consumer.
     No change in taste and preferences,
    customs, habit and fashion of the consumer.
     No change in size of population
     No expectation regarding future change in
    price.
    Exceptions to the law of demand

    Inferior goods/ Giffen goods


    A Giffen good is a good for which demand increases as the price
    increases and falls when the price decreases.

    Some special varieties of inferior goods are termed as giffen goods.


    Cheaper varieties of goods like low priced rice, low priced bread, etc
    are some examples of Giffen goods.
    Goods having prestige value

     Few goods like diamond can be purchased only by rich people.


    The prices of these goods are so high that they are beyond the
    capacity of common people. The higher the price of the
    diamond the higher the prestige value of it.
     In this case, a consumer will buy less of the diamonds at a low
    price because with the fall in price, its prestige value goes
    down. On the other hand, when price of diamonds increase,
    the prestige value goes up and therefore, the quantity
    demanded of it will increase.
    Price expectation

     When the consumer expects that the price of the


    commodity is going to fall in the near future, they
    do not buy more even if the price is lower.
     On the other hand, when they expect further rise
    in price of the commodity, they will buy more even
    if the price is higher. Both of these conditions are
    against the law of demand.
    Fear of shortage

     When people feel that a commodity is going to


    be scarce in the near future, they buy more of it
    even if there is a current rise in price.
     For example: If the people feel that there will be
    shortage of L.P.G. gas in the near future, they
    will buy more of it, even if the price is high.
    Change in income

     The demand for goods and services is also affected


    by change in income of the consumers.
     If the consumers’ income increases, they will
    demand more goods or services even at a higher
    price. On the other hand, they will demand less
    quantity of goods or services even at lower price if
    there is decrease in their income. It is against the
    law of demand.
    Change in fashion

     The law of demand is not applicable when the


    goods are considered to be out of fashion.
     If the commodity goes out of fashion, people do
    not buy more even if the price falls. For
    example: People do not purchase old fashioned
    shirts and pants nowadays even though they've
    become cheap. Similarly, people buy
    fashionable goods in spite of price rise.
    Basic necessities of life

     In case of basic necessities of life such as


    salt, rice, medicine, etc. the law of
    demand is not applicable as the demand
    for such necessary goods does not change
    with the rise or fall in price.
    Thank you….

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