Exceptions to the law of demand

The law of demand is subject to the following exceptions.

1.  Giffen good:  A Giffen good is a special type of inferior good on which people spend a major portion of their income.  It owes its name to Sir Robert Giffen who found a unique behaviour among the labourer’s in England during the 19^th century.  They consumed Meat and bread and when the price of bread increased they consumed more of it since the price of bread was cheaper compared to meat. When the price of bread fell, their real incomes increased and they wanted a variety in their diet and so they consumed less of bread and started consuming meat. This unique behaviour is called “Giffen paradox”

2.  Veblen Effect: American economist Thorstein Veblen observed that the rich people would buy more expensive items like Jewellery, costly cars and Bungalows to show their status.  They would buy less of it when price of these items fell because others could afford it. This is called “The Veblen effect”.

3.  Speculation:  In a stock market when the share price of a company raises more people buy the stock to make windfall gains and when share price of a particular company falls, very few people purchase.

4.  Necessaries:  The law of demand doesn’t hold good in case of necessaries.  In case the price of salt rises people still buy the same quantity and not less. In case a shortage is foreseen, then the demand for salt rises in spite of its price rise.

5.  Brand loyalty:  Brand loyalty on the part of consumers ensures that the demand doesn’t fall when the price of such goods rise.

6.  Ignorance of consumers:  Consumers’ ignorance that high price goods are better quality goods also is an exception to the law of demand.