Exceptions to the Law of Demand

Exceptions of Law of Demand

The Law of demand is a common statement stating that prices and quantities of a commodity are inversely correlated. There are certain peculiar situations in which the law of demand will not hold well. In those situations, more will be demanded at higher price and less will be demanded at a lower price. The demand curves in those situations slope upwards exhibiting a positive relationship among price and quantity demanded as shown in figure below:

A Positively sloping Demand Curve

(1) Articles of Snob Appeal:

   Veblen has indicated that there are some goods demanded by very wealthy people for their social prestige. Whenever price of these goods increase, their use becomes more attractive and they are purchased in bigger amounts.

Demand for diamonds from wealthier class will go up when there is raise in price. When such goods were cheaper, the rich would not even buy.

(2) Giffen Paradox:

  Sir Robert Giffen introduced that the poor people will demand more of low-grade goods when their prices increase and demand less when their prices fall. Inferior goods are those goods that people purchase in large quantities when they are poor and in small quantities when they become rich. For illustration, poor people expend the major portion of their income on coarse grains and only a small portion on rice. Whenever the price of coarse grains increases, they will purchase less rice. To fill up the resultant gap, more of coarse grains have to be purchased. Therefore, raise in the price of coarse grains outcomes in the raise in quantity of coarse grains bought. This is termed as ‘Giffen Paradox’. In such situations, the law of demand has an exemption.


(3) Exceptions Regarding Future prices: If price of a commodity is rising today and it is likely to rise more in the future, people will buy more even at the existing higher price and store it up.They will do this in order to avoid the pinch of higher price in future. Similarly, when the consumers anticipate a large fall in the price of a commodity in future, they will postpone their purchase even if price falls today so as to purchase this commodity at still lower price in future.

(4) Emergencies: Law of demand may not hold good during emergencies like war, famines, etc. At such times, consumers behave in an abnormal way. If they expect shortage of goods, they would buy and hoard goods even at high prices during such periods. On the other hand, during depression they will buy less even at low prices.

(5) Quality-Price Relationship: Sometimes consumers assume that high priced goods are of higher quality than the low priced goods. They take price as an index of quality. In such cases, more of the goods are demanded at a higher price.

(6) Change in Fashion:  When a commodity goes out of fashion, consumers will not purchase a larger quantity of this commodity even when its price is reduced.