Law of Demand - Exceptions to the Law of Demand

Exceptions to the law of demand:

There are certain exceptions to the law of demand. It means that under exceptional circumstances, consumer buys more when the price of commodity rises and buys less when price of commodity falls. In such cases, demand curve slopes upwards from left to right. i.e. the demand curve has a positive slope as shown in figure.

Following are the exceptions to the law of demand:

1) Giffen's paradox :

Inferior goods or low  quality goods are those goods whose demand does not rise even if their price falls. At times, demand decreases when the price of such commodities fall. Sir Robert Giffen observed this behaviour in England in relation to bread. He noted that, when the price of bread declined, people did not buy more because of an increase in their real income or purchasing power. They preferred to buy superior
good like meat. This is known as Giffen's paradox.

2) Prestige goods :

Expensive goods like diamond, gold etc. are status symbol. So rich people buy more of it, even when their prices are high.

3) Speculation :

The law of demand does not hold true when people expect prices to rise still further. In this case, although the prices have risen today, consumers will demand more in anticipation of further rise in price. For example, prices of oil, sugar etc. tend to rise before Diwali. So people go on purchasing more at a high price as they anticipate that prices may rise during Diwali.

4) Price illusion :

Consumers have an illusion that high priced goods are of a better quality. Therefore, the demand for such goods tend to increase with a rise in their prices. For example, branded products which are expensive are demanded even at a high price.

5) Ignorance :

Sometimes, due to ignorance people buy more of a commodity at high price. This may happen when consumer is ignorant about the price of that commodity at other places.

6) Habitual goods :

Due to habit of consumption, certain goods like tea is purchased in required quantities even at a higher price.