4 important exceptions to the law of demand

1- Giffen goods

These goods came to be known as Giffen goods after the name of Sir Robert Giffen, a notable English Economist. These goods constitute very inferior goods which are essential for a minimum living. Law of Demand does not hold well in case of giffen goods. Robert Giffen found that bread and meat were two important items of consumption of the workers in early 19th century England.

As meat is superior to bread they can’t afford to pay for meat. With the fall in price of bread in the market they bought the same quantity at fewer prices. The money income so saved was spent on the meat instead of bread.

Thus with a fall in price quantity of bread falls and with a rise in price quantity of bread rises. This is contrary to the operation of Law of Demand. The demand curve of giffen goods rises upward from left to right.

2. Prestigious goods:-

There are certain goods having prestige value. These goods are mainly consumed by the richer sections of the society for the gain of pride and social distinction. The consumption of prestigious goods is known as conspicuous consumption. According to Veblen some rich people measure the utility of a commodity entirely by price. The greater the price of a commodity, the greater it’s utility.

Diamond has got a very little value in use but has got a very great prestige value as its price is extremely high. Poor people can’t dream of its use. The richer people buy diamond so long as its price is high. The moment its use comes to the income ability of the common people diamond ceases to be an article of distinction.

The greater the price of diamond, the greater it’s utility because of its higher prestige value. The consumer will buy less of diamonds at a low price because of the fall in prestige value. Thus prestigious goods constitute another exception to the Law of Demand.

3. Speculation:-

There are some commodities whose prices are expected to change in future. People demand more when price of the commodity continues rising. People apprehend a further rise in price in the future. To escape the further rise in price, they hurry to buy more even at a high price.

The fear of price rise in future makes him buy more at a higher price. On the other hand they buy less at fewer prices with a hope of further fall in future. Thus this expectation or speculation constitutes another exception to the Law of Demand.

4. Ignorance about quality:-

Usually consumers judge the quality of a commodity from its price. A high priced commodity is thought to have higher value than that of a low priced commodity.