Question

Explain four circumstances under which the law of demand does not operate.

Many a times the inverse relationship between price and the amount purchased does not hold good. Explain this statement giving reasons.

Answer 1

The law of demand does not operate under the following circumstances.

1. The law of demand does not apply to Giffen goods. A decrease in the price of Giffen goods tends to lower demand, whereas an increase in the price tends to expand demand.
2. When consumers think that high-priced goods are invariably of higher quality, the law of demand fails.
3. The law of demand does not apply to prestigious commodities such as diamond jewels and costly cars. The demand for such things is viewed as a status symbol. As their prices rise, purchasing them becomes more prestigious.
4. Consumers may buy more of a commodity, even at higher prices, if they anticipate a shortage of that commodity in the near future.
5. The law of demand does not apply to the necessities of life also.