Question

Explain how the following phenomena is an exception to the law of demand:

Conspicuous consumption by a consumer.

Answer 1

The law of demand does not apply to the commodities that serve as 'status symbols, increase social prestige or are a source of display of wealth and richness. Veblen, who was first to coin the term, has termed these goods as goods of conspicuous consumption. These goods are demanded because of the enjoyment they give to their possessor from the feeling that other people envy him for possessing these high-priced items. Diamonds is often given as an example of this case. Rich women would like to buy diamonds simply because their price is very high. The higher price makes the possession of diamonds more prestigious. These goods of status symbols remain exclusive so long as their prices remain high. When the price of diamonds goes up, their prestige value will also go up. Therefore, at a higher price, the quantity of diamonds demanded by rich consumers may increase.