Exceptions to the Law of Demand

A few situations are genuine departures from the Law of Demand, where quantity demanded moves in the same direction as price instead of the opposite direction.

• Giffen goods. Named after Sir Robert Giffen, these are inferior goods that form a large part of a poor consumer's budget (e.g., a coarse cereal). When the price of such a good falls, the resulting rise in real income is spent by the consumer on shifting towards a better substitute — so quantity demanded of the Giffen good can actually fall. Here the negative income effect outweighs the substitution effect.
• Veblen (prestige/snob) goods. Certain goods — rare jewellery, luxury cars, branded items bought purely for social display — are demanded partly because of their high price, which itself signals status. A price cut can reduce their appeal and hence quantity demanded.
• Expectations of future price change. If buyers expect the price of a commodity to rise further, they may buy more even at today's higher price (to buy ahead of the increase); if they expect the price to fall further, they may postpone purchases even at today's lower price. Speculative buying of shares follows this pattern closely. …