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Questions
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.
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Solution
The law of demand does not operate under the following circumstances.
- 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.
- When consumers think that high-priced goods are invariably of higher quality, the law of demand fails.
- 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.
- Consumers may buy more of a commodity, even at higher prices, if they anticipate a shortage of that commodity in the near future.
- The law of demand does not apply to the necessities of life also.
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