Question

Explain the exceptions to the law of demand.

Briefly discuss two exceptions to the law of demand.

What are the exceptions to the law of demand?

Answer 1

Exceptions to the law of demand:

1. There are some unusual demand curves that slope upwards from left to right. It is known as the exceptional demand curve.
2. In the case of an exceptional demand curve, a fall in price brings about contraction, and a rise in price brings about the extension of demand.

Reasons for exceptional demand curve:

1. Giffen paradox: Giffen Goods are low-quality or inferior, such as vanaspati ghee (Dalda) and low-quality rice. These are goods whose demand does not increase, even when their price drops. This trend occurs because individuals constantly strive to improve their standard of living. Sir Robert Giffen observed this pattern with bread (an inferior good) in England. Due to limited funds, people consumed more bread, a cheaper item, and less meat, a more expensive one. He found that when the price of bread decreased, the demand for it actually fell. People used the money they saved on bread to buy more meat, thereby increasing the demand for meat. This phenomenon is known as "Giffen's Paradox." For Giffen goods, there is a direct relationship between price and quantity demanded, and the demand curve for these goods slopes upward from left to right.
2. Speculation: The law of demand does not apply when people anticipate future price increases. In such cases, even though prices have already risen, consumers may demand more in expectation of further price hikes. For instance, during the intense lockdown in March 2020, people predicted that prices of goods would rise in the future, so they bought large quantities of goods, even at higher prices.
3. Habitual Goods: If a person is accustomed to or addicted to certain goods, their demand for them will remain unchanged, even if the price increases. For instance, individuals addicted to social media platforms like Facebook, TikTok, or Instagram will continue using them even if the cost of data packs or internet usage rises.
4. Prestige Goods: Prestige goods are considered a symbol of status in society. Wealthy individuals may demand more of these goods when their prices increase, as a way to showcase their wealth. Examples include gold, diamonds, luxury watches, expensive cars, and more.
5. Fashion: A product that is no longer in fashion (such as keypad phones) will experience lower demand, even if the price decreases. On the other hand, a product that is in trend (like smartphones) will have high demand, even if the price increases. This case represents an exception to the law of demand.
6. Ignorance: At times, people may purchase more of a commodity at higher prices due to lack of awareness. This scenario can occur because the consumer is unaware of the prices of the same commodity in other locations.
7. Demonstration Effect: The demonstration effect refers to the tendency of low-income groups to mimic the consumption habits of high-income groups. For instance, the "Being Human" T-shirts by Salman Khan are in high demand, despite their expensive prices.