The law of demand is when the price rises, demand falls and when the price declines, demand increases. People buy more commodities when their income increases. Similarly they buy less commodities when their income is low. It is the general law of demand. But there is a few exceptions to the law of demand, which are discussed below:
The Exceptions To The Law Of Demand
1. Prestige goods : The Law of Demand is not applicable in the case of prestige goods. Rich persons buy these goods for maintaining their prestige, status and dignity in society. Diamonds, pearls, gold etc. are some examples of prestige goods. Even though these goods do not possess use-value, they carry prestige value to the rich. The demand for these goods increases when their price rises and decreases when their price falls. Rich persons buy more quantity of these goods at higher prices. They hesitate to buy them at lower prices, because they feel that everybody can buy these goods at lower prices. So, this is against the Law of Demand pose as an Exceptions To The Law Of Demand..
2. Giffen Paradox : This exception of the Law of Demand was explained by Sir Robert Giffen. He explained this paradox on the basis of the consumption behavior of the British people. He stated that people demand more quantity of inferior goods when their price increases. He described this paradox with the help of two essential commodities used by the British people. The two commodities are potatoes and meat. He considered that the British spent a major portion of their income on potatoes and a less portion on meat. When the price of potatoes increase, they buy less quantity of meat by spending less amount of money. They spend this amount for buying more quantity of potatoes. So the demand for potatoes increases. This is also against the Law of Demand and pose as Exceptions To The Law Of Demand.
3. Speculation : The Law of Demand is not applicable in the case of speculative activities and speculative goods. Businessmen consider it profitable to buy more quantity of goods even though the prices increase. They speculate a further rise in prices in the immediate future. Similarly if they expect any fall in the prices of goods, they like to reduce the demand for various goods as it is not profitable to buy more quantity of goods at falling prices. Such a tendency of business people in speculative activities are exceptions to the Law of Demand.
