Written by Being the diligent students that you are, your mind would have already been ingrained with the law of demand.
Specifically, the law of demand states that as the price of a good or service increases, the quantity demanded by consumers decreases, and vice versa.
However, the law of demand does not always hold true in every situation. There are some cases where the quantity demanded of a good or service increases as its price increases or decreases as its price decreases.
These cases are known as the exceptions to the law of demand.
In this post, we will look at the exceptions to the law of demand.
Table of Contents
1. Snob appeal or Veblen goods
This refers to the demand for a good that is influenced by its prestige, status, or exclusivity, rather than its utility or quality.
For example, some consumers buy expensive goods, like luxury cars, and jewelry, not because they need them or enjoy them, but because they want to show off their wealth, taste, or social class.
These goods are also known as Veblen goods, after the economist Thorstein Veblen, who coined the term “conspicuous consumption” to describe this phenomenon.
For these goods, the higher the price, the higher the demand, because they become more desirable and attractive as they become more expensive.
So, Veblen goods usually have an upward-sloping demand curve.
2. Consumers’ expectations of higher prices or lower prices.
Consumers will sometimes buy things even if their prices rise, especially if they expect the price to further increase.
For example, if the price of a bag of rice increases from N4,000 to N5,000 consumers expect that the price of rice will further increase to N10,000.
Even if the price has increased, some people may still buy more bags of rice now to avoid paying the higher price of N10,000
This will result in an increase in the bag of rice demanded, which will violate the law of demand.
Conversely, if the price of a commodity decreases and consumers expect the price to further decrease, they will not buy the commodity now to avail the opportunity of buying it at a much lower price.
This, once again, violates the law of demand which states that more of a commodity is demanded when the price decreases.
3. Highly essential goods
The demand for some commodities (like water, and medicine) that are deemed essential for our living may defy the law of demand.
This is because these commodities are indispensable for our well-being. As such, we have to consume them at a certain minimum level, regardless of their cost.
So, for these goods, changes in price may have no effect on their demand, which violates the law of demand.
4. Giffen goods
Perhaps the most famous exception to the Law of Demand is Giffen goods.
These are inferior goods for which demand increases as the price rises.
The classic example is staple foods, like bread or rice, in times of extreme poverty.
When the price of such goods rises, consumers, who have limited income, may buy more of them because they can no longer afford costlier alternatives.
This phenomenon contradicts the inverse relationship between price and quantity demanded.
5. A significant change in consumer income
Even if the price of a good rises, consumers may still demand more of it if consumer income rises significantly.
For instance, if James’ income increases by 60% while the price of his book only increases by 2%, he may still purchase the same or more books because his income has significantly risen compared to the price.
So, if a consumer’s income rises significantly relative to the price of a good, the law of demand may not hold.
