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Question
Why are prestige good an exception to the law of demand?
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Solution
Many goods have prestige value; that is, they increase the status of consumers who own or use them. These are called prestige goods. Jewellers and fashionable clothing and luxurious cars are examples of these prestige goods. The law of demand does not apply in case of prestige goods the demand for prestige goods increases when their price is high. Such goods are mainly purchased because their price is high. A fall in their price may lead the rich people to buy less because now the rich's desire for display is not satisfied. American economist Veblen was the first to explain this exception. So, prestige goods are known as Veblen goods.
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RELATED QUESTIONS
State with reason whether you agree or disagree with the following statement:
When the price of Giffen goods falls, the demand for it increases.
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There are no exceptions to the law of demand.
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Questions:
- Diagram’ A ‘represents _____in demand (1m)
- Diagram ‘B’ represents _____in demand (1m)
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State with reason whether you agree or disagree with the following statement.
When price of Giffen goods fall, the demand for it increases.
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When price of Giffen goods fall, the demand for it increases.
When price of Giffen goods fall, the demand for it increases.
In which exception to the law of demand does the consumer equate price and quality.
State two circumstances under which the demand curve slopes upwards to the right.
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Why do people buy more luxury goods when prices go up, defying the usual law of demand?
