Exceptions to the Law of Demand A normal demand curve falls downward from left to right. The basic feature of the demand curve is negative sloping But sometimes the demand curve may slope upward from left to right. In other words, it may have a positively inclined curve. These phenomena may due to: Giffen paradox Veblen or Demonstration effect. Ignorance. Speculative Effect. Fear of Shortage. Necessaries Brand Loyalty Festival, Marriage etc.

1. Exceptions to the Law of Demand
(Exceptional Demand Curve)
Unit 11
Instructor:
Atta Hussain Syed

2. Exceptions to the Law of Demand
(Exceptional Demand Curve)
• A normal demand curve falls downward from left to right. The basic
feature of demand curve is negative sloping
• But sometimes the demand curve may slope upward from left to right. In
other words it may have a positively inclined curve.
• These phenomena may due to:
1. Giffen paradox
2. Veblen or Demonstration effect.
3. Ignorance.
4. Speculative Effect.
5. Fear of Shortage.
6. Necessaries
7. Brand Loyalty
8. Festival, Marriage etc.

3. 1. GIFFEN PARADOX
This paradox is first explained by Sir
Robert Giffen.
The Giffen goods are inferior goods
is an exception to the law of
demand.
When the price of inferior good
falls, the poor will buy less and
vice versa.
Sir Robert Giffen
Scottish Statistician and
Economist

4. 1. GIFFEN PARADOX
• When the price of maize falls,
the poor will not buy it more but
they are willing to spend more
on superior goods than on
maize.
• Thus fall in price will result into
reduction in quantity.

5. 2.VEBLEN OR DEMONSTRATION EFFECT
According to Veblen, rich people
buy certain goods because of its
social distinction or prestige.
Diamonds and other luxurious
article are purchased by rich
people due to its high prestige
value.
Hence higher the price of these
articles, higher will be the
demand.
Thorstein Veblen
American Economist and
Sociologist

6. 2.VEBLEN OR DEMONSTRATION EFFECT
Demonstration effect is the effect of
a person's behavior, particularly
with respect to consumption in
economics.
James Duesenberry, in his
consumption theory, advocated
that demonstration effect comes in
to picture when one persons
consumes something by seeing
another person or to show some
one and not due to his own
original likes and dislikes.
James Stemble Duesenberry
American Economist

7. 4.IGNORANCE
• Some times consumers think that the product is superior
or quality is high if the price of that product is high.
• As such they buy more at high price.

8. 4.SPECULATIVE EFFECT
• When the price of commodity is increasing, then the
consumer buy more of it because of the fear that it will
increase still further .

9. 5.FEAR OF SHORTAGE
• During the time of emergency or war, people may expect
shortage of commodity and buy more at higher price to
keep stock for future.

10. 6.NECESSARIES
• In the case of necessaries like rice, vegetables etc., People
buy more even at a higher price.

11. 7.BRAND LOYALTY
• When consumer is brand loyal to particular product or
psychological attachment to particular product, they will
continue to buy such products even at a higher price.

12. 8. FESTIVAL, MARRIAGE Etc.
• In certain occasions like festivals, marriage etc. people will
buy more even at high price.