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Friday, 22 June 2018

Exceptions of law of Demand- An Analysis

Exceptions of Law of Demand

Articles of social distinction are kind of goods in which case law of demand does not operate. These goods are exception to the law of demand. Law of demand states that if other determinants remain constant, demand increases with increase in own price and demand decrease with decrease in own price of good. But in case of article of social distinction , law of demand fails I.e these goods are demanded even with increase in own price. E.g Diamond, Luxury cars, Expensive jewellery etc.
But it is very necessary to analyze that why does it happens?. What are the factors which are responsible for this situation?.
The main factor responsible for this phenomena is that Article of social distinction goods are directly related with richer section of society. This class of society demand these goods even at higher price to maintain their standard in the society. They want to show themselves distinct in society. This is related with physchological satisfaction of richer section of society. Article of social distinction are demanded only at high prices.

Another exceptions to Law of demand are Giffen goods, wrong decision by consumers etc. Giffen goods are called highly inferior goods. Sir Robert Giffen first found that in case of these goods law of demand does not operate. He observed some worker in a mill where price of bread rised. He noticed that demand for bread rised even rise in price. now important question in this case arise that how is it possible?. Do we demand bread more when price of bread increases?. Answer is "No". Then why did workers demand bread even at increasing price. To understand this phenomena a single word  "staple" or " main" etc is enough. These Giffen goods are staple goods for some people. Staple means main source of food. When price increases they start to expect that either price will increase more in future or good will not be available in near future. Hence their current demand increases even at rising price.

Some people take wrong decisions about quality of goods. They think that higher priced goods are good in quality and vice versa. Law of demand does not operate in this case also .

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