Exception to law of Demand

Exception to the law of Demand / when demand curve slopes upward / a positive slope demand curve

Law of demand may not operate in many situations.

These are known as the exception to the law of demand, where demand curve may not have negative slope.

A positively sloped demand curve shows with rise in price, quantity demanded rises and with fall quantity demanded falls.

Discussed below are the various exceptions.

1) Giffen Goods:

Named after economist Sir Robert Giffen, he said giffen goods are those inferior goods on which the consumer spends a large part of his income and the demand for which falls with a fall in their price.
for example - maize and jowar are considered to be inferior food grains for average consumers.

As the price of maize falls, real income rises, know the consumer may afford to purchase superior foods like wheat or rice.

Since there is a limit to intake of food, quantity demanded for maize would be lower.

Similarly, if the price of maize rises, poor consumers will be forced to spend more on the purchase of maize because it is essential for their survival.

They cannot afford to purchase the same quantity of superior food items that they purchased earlier because they would be left with lesser money to spend on other commodities.

Thus, they will increase the demand for maize at the cost of wheat or rice.

2) Conspicious consumption:

Coined by economist Veblen, law of demand does not apply to the commodities which serve as status symbol, social prestige or are a source of display of wealth and richness 

ex. diamonds.

These goods are termed as goods of Conspicious consumption.

When the price of diamond goes up, their prestige value will also go up. At higher price the quantity demanded of diamond by rich may rise.

3) Expectation regarding prices :

If the price of a commodity is rising today and will continue to rise in future also, consumers will buy even more at existing price to avoid higher price in future.

Similarly, when the consumers expect a large fall in the price of a commodity in future, they will not purchase today even if the price falls today so as to purchase this commodity at still lower price in future.

4) Change in fashion:

If something is out of fashion, consumers will not purchase a larger quantity of this commodity even when its price is reduced.

5) Quality –Price relationship:

Sometimes consumers take price as the index of quality. They assume that high priced goods are of higher quality than the lower priced goods. In such case more is demanded at higher price.

for example: some people buy more of ‘Colgate Supreme’ having a higher price than the ordinary ‘Colgate’ having a lower price even though the two  brands are almost of the same quality. This is known as Veblen effect.

6) Emergencies :

Law of demand may not operate at the time of emergencies like war, famines, floods etc.