Exception to the Law of Demand

The law of demand is a general statement. But there are instances when the law does not hold good. These cases may be considered as exceptions to the law of demand.

• Giffen Goods

Giffen goods inferior goods where the law of demands does not hold good. Sir Robert Giffen found in the 19^th Century that the people of Ireland were so poor that they spent the major part of their income on bread and potato and a very small part on superior goods like meat. When price of bread and divert their income for superior goods like fish and meat. This is what we call the Giffen paradox. Therefore in case of Giffen goods, the law of demand does not hold good.

• Prestige Goods

There are certain goods which are demanded by the rich to satisfy their sense of vanity. Examples of such goods are diamonds, jewels, costly ornaments and sarees etc. The rich people use these goods for purposes of show and distinction. This is what Veblen calls conspicuous consumption. According to Veblen some people (the rich) measure the utility of a good entirely by its price. Higher is the price, greater is the prestige value of the commodity and they demands more of it. When the price of these goods fall, they lose their significance and their demand fall.

• Expectations of Price Change

During the period of rising prices, people’s expectations of future change may lead to the rise in demand for goods and services. This is because people expect that prices will further rise. Similarly when truckers notify to go on strike, prices start rising before the actual strike begins. Though prices are rising, people purchase more to hoard because of change expectations.

• Essential Goods

The law of demand does not operate in case of very essential goods whose consumption can neither be postponed (life saving drugs) nor substituted by other goods (salt). They are so indispensable that a rise in price does not lead to their fall demand. Therefore the law of demand does not operate in this typical case.