Exceptions To The Law of Demand

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What are the Exceptions to the Law of Demand?

In an economy, the chief determinants of the market conditions are demand and supply factors. In the competitive markets, the price range of the product keeps fluctuating as long as Demand and supply aren't equalled. This situation is equilibrium. There are specific exceptions to the law of Demand that we will explore now. In economics, the law of Demand is true to the lines for most cases. However, some significant exceptions are there. For instance, even if the Price for Cigarettes goes up, its Demand won't reduce. The exceptions to the law of demand typically suit the Giffen commodities, Veblen and essential goods. Let us have a look at these exceptions in detail now.

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Law of Demand

Law of Demand states that when the price of a product increases, its demand decreases and vice versa, keeping all other factors constant. Say a buyer may get a dozen fruits at Rs.80. If the price hikes up to Rs.90, he can limit the purchase to half a dozen. Therefore, the law of Demand in economics pictures an inverse relationship between the Price and quantity of a particular product or service. Now, we will get into what are the exceptions to the law of Demand?


Exceptions to the Law of Demand


1. Veblen Goods

The theory of Veblen goods belongs to the next category of exceptions to the law of Demand. Thorstein Veblen was the one to highlight this concept. Veblen goods are the ones whose demand increases with their Price. They become more valuable with their price rise. These are the goods people consider to be more useful with an increase in Price. Like a high priced gold necklace, it's more desirable to the customer than the one with lower costs. A cell phone model with high cost has more demand in the market. These insights indicate exceptions to the law of Demand with examples.

Veblen's concept suits the best in the case of most popular celebrities. Like, they go for a high range of cosmetics or jewellery to maintain their status. It is a total exception to the law of Demand. 


2. Price Change Exception

The issue of price change in the market is another exception to the law of Demand. There might be a situation when the Price of a product or service increases and is subjected to future growth. So, the customers may buy more of it to avoid further cost increment. Eventually, there are times when the Price of a product is about to decrease. Consumers may temporarily stop the purchase to avail of the future benefits of price decrement.

Recently, there has been a massive rise in the price of onions. People were buying it more due to the worry of the further cost increase. 


3. Necessary Goods

Let us understand what are the exceptions to the law of demand in case of necessary items. The Demand for essential goods stays intact even if there’s a price rise. People can’t stop purchasing the products of regular necessities. For example, if the cost of salt increases, consumers won't end affording it. It is a complete opposite to the law of Demand in economics.


4. Luxury Goods

A significant exception to the law is Demand for luxury goods. In such cases, even if the price increases, the consumer won't stop consumption. Cigarettes and alcohol typically come in this category.


5. Income Change

The change in income of a consumer or a family also determines the Demand for a particular product. If a family's income increases, they may choose to buy a specific product in more quantity, no matter the Price. Again, if the family's income decreases, they can select to reduce product consumption to an extent. It opposes the law of Demand. 


Solved Example


Q. Which Among the Following is a Necessary Good?

  • Salt

  • Gold

  • Car

  • Mobile

Ans. The right answer is salt. Salt is a regular use commodity in households. Even if the price increases, the demand for salt won't degrade. This theory comes as the exact opposite of the law of Demand. For all the necessary goods, the demand stays the same, even in the price increment. Exceptions to the law of demand examples include both essential and luxury items.  


Did you Know?

Here are some great facts that you will love to know regarding the exceptions to Demand's law.

  • Five types of Demand exist in the market economy. They are market and individual Demand, industry demand, autonomous Demand, short term and long term demand and Demand for durable goods.

  •  Alfred Marshall introduced the Law of Demand in the market economy theory.

  • Prices of complementary goods stay as it is.

  • The taste and preference of the buyers are always the same.

  • The three exceptions to the law of Demand are Giffen goods, Veblen effect and income change.

FAQ (Frequently Asked Questions)

Q1. Where is the Law of Demand Not Applicable?

Ans. The law of Demand signifies that all other factors are proportional, the Price and Demand for a commodity share an inverse relationship. With the increase in the price of a particular good or service, its demand decreases and vice versa. There are certain exceptions to the law of Demand for specific products. Examples are Giffen goods, Veblen goods, income change of the family, luxury items; all these concepts do not follow the law of Demand. Say, in case of necessary items, the Demand stays the same even if the price increases. For goods such as jewellery or cars, the demand increases with a rise in Price. The latter is known as the Veblen concept.

Q2. What are Giffen Goods?

Ans. While discussing what are the exceptions to the law of Demand, Giffen goods are the first factor to consider. Sir Robert Giffen is the pioneer in introducing Giffen goods in economics. These products are inferior to that of regular or luxury purchases. As the Price of Giffen goods increases, so is their Demand. This significant feature makes these goods unique. Notably, all Giffen goods are inferior goods, but all inferior products aren't Giffen. Suppose there is a rise in the price range of meat or fish. To continue its daily consumption, the family may cut down the costs and thrive on bread.