Q.What are the exceptions to the Law of Demand? Explain Giffen goods and Veblen goods with examples.

Giffen goods and Veblen goods are the two classic exceptions where the demand curve does not slope downward.

The Law of Demand assumes an inverse price-quantity relationship, but a small set of recognised exceptions violate this — the demand curve for these goods slopes UPWARD (positively) instead of downward, at least over some price range.

Giffen goods (named after the 19th-century economist Sir Robert Giffen): these are strongly INFERIOR goods that form a very LARGE share of a poor consumer's total budget — the classic textbook example is a staple food like coarse grain for a very poor household. When the price of such a staple FALLS, the consumer's real income effectively rises; being now relatively less poor, the consumer buys LESS of the inferior staple and switches some spending to a superior, more preferred food. Here the (negative) income effect on an inferior good OUTWEIGHS the normal substitution effect, so quantity demanded FALLS as price falls — the opposite of the Law of Demand.

Veblen goods (named after economist Thorstein Veblen, "conspicuous consumption"): these are goods bought partly BECAUSE of their high price, as a mark of status or exclusivity — diamonds, luxury branded watches, premium cars. If the price of such a good is CUT, its "snob appeal" or exclusivity value falls, and some buyers may demand LESS of it, not more — again contradicting the normal downward-sloping demand curve. …

Confusing Giffen goods with Veblen goods — Giffen goods are cheap inferior necessities bought by the POOR, while Veblen goods are expensive luxury/status items bought by the wealthy; the underlyin …