Parallel to the Law of Demand – Its Exceptions
In our study of Economics, we have studied the concept of 'Demand.’ (Students are advised to study the chapter demand before proceeding with this content) As demand discusses the natural phenomenon of the price and demand of goods and services, that the demand of a certain item will rise with the fall in price and vice versa, you must know that this phenomenon is actually not true for all kinds of goods and services.
In this context, the study of the exceptions to the law of demand becomes a requisite. We will understand the core of its exception in this content.
Law of Demand and Its Exceptions
In an economy, the chief determinants of the market conditions are demand and supply factors. In competitive markets, the price range of the product keeps fluctuating as long as Demand and supply aren't equal. 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 decrease. 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.
Law of Demand
The 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
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 a 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 jewelry to maintain their status. It is a total exception to the law of Demand.
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.
Necessary Goods
Let us understand what are the exceptions to the law of demand in the 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 be able to afford it. It is the complete opposite of the law of Demand in Economics.
Luxury Goods
A significant exception to the law is the 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.
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.
FAQs on Exceptions to the Law of Demand: Explained
1. Where is the Law of Demand Not Applicable?
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 the case of necessary items, the Demand stays the same even if the price increases. For goods such as jewelry or cars, the demand increases with a rise in Price. The latter is known as the Veblen concept.
2. What are Giffen Goods?
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 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.
