Exceptions to law of demand pgp
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This document discusses exceptions to the law of demand in economics. The law of demand states that as the price of a product increases, quantity demanded decreases, and vice versa. However, there are some situations where this law does not apply. The document outlines several exceptions, including Giffen goods (where demand increases with price for inferior goods), conspicuous consumption of luxury goods, and demand for necessities like TVs and cars that do not decrease despite price increases. Other exceptions mentioned are expected future price changes, consumer ignorance, extraordinary situations like war or famine, and changes in fashion affecting demand.
Exceptions to law of demand pgp
- 1. SCHOOL OF MANAGEMENT STUDIES,KAKINADATopic: EXCEPTIONS TO DEMAND OF LAW
- 2. LAW OF DEMANDIn economics, the law states that, all else being equal, as the price of a product increases(↑), quantity demanded falls(↓); likewise, as the price of a product decreases(↓), quantity demanded increases(↑).There is an INVERSE relationship between quantity demand and its price.
- 3. EXCEPTIONS TO DEMAND OF LAWThe law of demand does not apply in every case and situation. The circumstances when the law of demand becomes ineffective are known as exceptions of the law. Some of these important exceptions are as under. Giffen Goods. Conspicuous consumption. Conspicuous necessities. Expected changes in price. Ignorance. Extraordinary situations. Change in fashion.
- 4. Giffen Goods: Some special varieties of inferior goods are termed as Giffen goods. Sir Robert Giffen of Ireland first observed that people used to spend more their income on inferior goods like potato and less of their income on meat. When the price of potato increased, after purchasing potato they did not have so many surpluses to buy meat. So the rise in price of potato compelled people to buy more potato and thus raised the demand for potato.
- 5. Conspicuous Consumption: A few goods like diamonds etc are purchased by the rich and wealthy sections of the society. The higher the price of the diamond the higher the prestige value of it. So when price of these goods falls, the consumers think that the prestige value of these goods comes down. So quantity demanded of these goods falls with fall in their price.
- 6. Conspicuous Necessities: Certain things become the necessities of modern life. So we have to purchase them despite their high price. The demand for T.V. sets, automobiles and refrigerators etc. has not gone down in spite of the increase in their price. These things have become the symbol of status. So they are purchased despite their rising price.
- 7. Expected change in price: When the prices are rising households tend to purchase large quantities of the commodity out of the apprehension that prices may still go up. When prices are expected to fall further, they wait to buy goods in future at still lower prices. Ignorance: A consumer’s ignorance is another factor that at times induces him to purchase more of the commodity at a higher price. This is especially so when the consumer is haunted by the phobia that a high- priced commodity is better in quality than a low- priced one.
- 8. Extraordinary Situations: Emergencies like war, famine etc. negate the operation of the law of demand. At such times, households behave in an abnormal way. Households accentuate scarcities and induce further price rises by making increased purchases even at higher prices during such periods. Change in Fashion: A change in fashion and tastes affects the market for a commodity.