Law of Demand - Assumptions - Exceptions in the law of demand

1. Law of Demand
Assumption – Exceptions
Prepared By:
Mohammed Jasir PV
Asst. Professor
MIIMS, Puthanangadi
Contact: 9605 69 32 66

3. Law of Demand
Law of demand states that demand for a commodity rises when price
falls and vice versa, when other determinants of demand remain
unchanged.

4. Assumptions in law of demand
• Tastes and habit of the consumer will remain constant
• Prices of other goods remain constant
• There is no substitute effect for commodity
• Income of consumer remains constant
• There is no change in number of consumers
• There is no change in consumer’s taste and preference

5. Exceptions to the law of demand

6. • Giffen goods
• Veblen Goods (Goods of status)
• Ignorance
• Expectation of price rise in future
• Demonstration effect
• Emergency
• Change in Fashion and preferences
• Conspicuous Necessities
• Bandwagon Effect
Exceptions to the law of demand

7. • Giffen good is necessarily an inferior good consumed mostly by poor
consumers as essential commodities.
• Cheaper varieties of goods like low priced rice, low priced bread,
potatoes, salt etc. are some examples of giffen goods.
(No change in demand by any change in price)

8. Goods of Status / Veblen Goods Expectation of price rice in future

9. • Goods Of Status / Veblen Goods: Veblen goods are
prestigious goods. They promote social prestige of the
holder.
• Example: diamond and other precious stones
• Expectation of price rice in future: Consumers
expectations about changes in price affect their buying
behavior.
• Example: share, Petrol

10. Demonstration Effect

12. Emergency

13. • Emergency: Emergencies like war, curfew etc , the law of demand does not
hold. In such situations, there is general insecurity and fear of shortage of
necessities.
• Hence consumers demand more goods even at higher prices.

14. • Through the constant use they have become necessities of life. Or it
become necessity in modern life. We will purchase it with higher price
• Eg. TV, Fridge
Conspicuous Necessities