Q.Explain the exceptions to the law of demand.

Normally demand and price move in opposite directions, but in certain cases demand rises when price rises or falls when price falls. These exceptions are Giffen goods, prestige or Veblen goods, expectation of future price changes, consumer ignorance, necessaries of life, and fear of shortage.

The law of demand

The law of demand states that, keeping all other factors constant, the quantity demanded of a commodity increases when its price falls and decreases when its price rises. The demand curve therefore slopes downward from left to right. In a few situations, however, this inverse relationship does not hold; these are called exceptions to the law of demand.

Exceptions to the law of demand

• Giffen goods: In the case of certain inferior goods (named after Sir Robert Giffen), when the price falls the consumer may buy less and switch part of the released income to superior goods, so demand falls with a fall in price.
• Goods of ostentation / Veblen goods: Articles of prestige such as diamonds and luxury cars are bought to display status; a higher price increases their snob appeal and so increases demand.
• Expectation of further change in price: If consumers expect the price to rise still further, they buy more even when the price has already risen, and buy less when they expect a further fall. …