Basic Elements of Demand and Supply

Exceptions to Law of Demand

Demand is the amount of good or service a consumer is willing and able to purchase (spend) per period of time. Consumers who are willing to buy and able to buy are different things. So many consumers are willing to buy products that they cannot afford at prices they cannot pay. It is the maximum amount of money a consumer is willing to pay and is able to pay for such quantity of the commodity. The law of demand states that when the price of goods falls its demand increases and when the price of the goods rises its demand decreases. However, there are some Exceptions to the Law of Demand.

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Exceptions to the Law of Demand

Normally the law of demand applies to a large number of goods. However, there are some circumstances when the law of demand does not apply which are known as Exceptions to the law of demand.

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Some of the important exceptions to the law of demand are as follows:-

1.Expected change in the price of goods

Quantity demanded of a product increases if it is expected that there will be a rise in the price of the product. Consumers postpone their purchases when fall in price is expected.

2. Type of Goods

Inferior Goods: Generally low-quality goods are consumed by the poorer sections of society. Inferior goods are consumed by poor consumers for their survival. Consumers move to better quality goods with an increase in income.

Also, if the income of consumers falls they might shift from good quality products to inferior goods or may reduce the demand for such goods.

For example, with an increase in income, a poor consumer (who is from a low-income group) shifts his demand from grains to better qualities of cereals.

Giffen Goods: Giffen goods are cheaper varieties of inferior goods. This category covers cheaper varieties like bajra, low priced rice, low priced bread, cheaper vegetable like potatoes. Due to the lack of substitute consumers consume these goods even at a high price.

Ignorance: Good quality commodities are costly and expensive is a myth among consumer. It also happens when consumers are unable to judge the quality of the products.

Conspicuous Consumption (Goods having Prestige value): Consumers are attracted by distinct and costly goods. These are treated as a sign of prestige. The consumer buys more of such product if the price of such product is high.

For example – Diamond. Only rich consumers can buy a diamond. The price of such product is beyond the capacity of the normal consumer. If the diamond is very costly (expensive) it will be considered as more prestigious.

The consumer will buy fewer diamonds if the price of diamonds is low because, with the fall in price, its prestige value goes down whereas; the consumer will buy more diamonds if the price increases.

exceptions to the law of demand

3. Change in Fashion

Change in fashion and taste affects the demand for a commodity. When he considers that goods are out of fashion, the law of demand becomes ineffective. Once the commodity goes out of fashion, consumers resist buying more even if the price falls.

For example, Consumers do not buy old fashioned clothes even if they are available at low prices or discounted price. Consumers prefer current fashionable clothes even if they are available at high prices.

4. Complementary Goods

Complementary goods are another exception to the law of demand. For Example: – Demand of DVD player increases due to falling in its prices; demand for DVD’s will also increase irrespective of its high price.

Solved Example on Exceptions to Law of Demand

A consumer consumes an inferior commodity  when his income:

  1. Becomes nil
  2. Remains the same
  3. Falls
  4. Rises

Ans: 4. Rises

This is because when the income of a consumer rises he buys goods of better quality rather spending more on inferior goods.

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2 responses to “Exceptions to Law of Demand”

  1. suhani jain says:

    A consumer consumes an inferior commodity when his income:

    Becomes nil
    Remains the same
    Ans: 4. Rises

    This is because when the income of a consumer rises he buys goods of better quality rather spending more on inferior goods.

  2. Tata Comfort says:

    He consumes inferior goods when his income falls because he cannot shift to other goods due to his low purchasing power

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