The Law of Demand shows an inverse relationship between price and demand of a commodity. However, there are situations where this relationship does not hold good. In these situations the demand curve may slope positively.
These situations are the exceptions of the law of demand. Followings are the exceptions of the law of demand:
1. Articles of distinction:
(Veblen goods) According to Prof. Veblen articles of distinction such as diamonds, gems, costly carpets, etc. are in more demand when their prices are high.
The reason is that rich people measure the desirability of these articles in terms of their prices alone and consider these goods as honour possession. Therefore, rich people demand more of articles of distinction when their prices are high.
2. Giffen goods:
Price effect is the composite effect of ‘income effect’ and ‘substitution effect’. Giffen goods (most inferior goods) are those inferior goods for which ‘income effect’ of change in price is negative and is greater than the substitution effect.
Therefore, the demand of Giffen goods increases with rise in price and decreases with fall in their price.
3. Ignorance of buyers about quality:
Many a times, buyers due inertia or out of sheer ignorance consider the price of the commodity as index of its quality.
Due to this ignorance, a lower-price commodity may be considered inferior. Therefore, purchasers buy lesser quantity of the commodity at its lower price.
But when the price of commodity is more, buyers consider it to be superior and thus buy more of it than before.
4. Future changes in prices:
Purchaser also acts as speculators. When the price has increased and is expected to rise further, buyers tend to purchase more quantities of the commodity out of the apprehension of rise in price in future.
Likewise when prices are expected to fall further, a reduced price may not induce the buyers to purchase more of the commodity.
5. Necessaries of life:
We cannot reduce the consumption of necessaries of life and conventional necessaries even if their prices have increased sharply.