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.

Explain four exceptions to the law of demand.

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 fall in the price of Giffen goods tends to reduce its demand and a rise in its price tends to extend its demand.
2. The law of demand does not operate when the consumers think that high priced goods are always superior in quality.
3. The law of demand does not apply to prestigious goods like diamond jewellery, costly cars etc. The demand for such goods is taken as status symbol. As their prices go up, people take it more prestigious to buy them.
4. The consumers may buy more of a commodity even at higher prices when they fear a shortage of that commodity in near future.
5. The law of demand does not apply to the necessities of life also.