In this post you will come to know about "The law of demand".It states that price and quantity demand of any good and service are inversely related to each other keeping other factors constant (cetris peribus). When the price of a product increases, the demand for the given product will fall.

 Assumptions

(i) There is no change in the tastes and preferences of the consumer.

(ii) The income of the consumer remains constant.

(iii) There is no change in customs.

(iv) The commodity to be used should not confer distinction on the consumer.

(v) There should not be any substitutes of the commodity.

(vi) There should not be any change in the prices of other products.

(vii) There should not be any possibility of change in the price of the product being used.

(viii)There should not be any change in the quality of the product.

(ix) The habits of the consumers should remain unchanged. Given these conditions, the law of demand operates. If there is change even in one of these conditions, it will stop operating and

(x) There is no expectation of change in price in the future.

Exceptions to the Law of Demand

In certain cases, the demand curve slopes up from left to right, i.e., it has a positive slope. Under certain circumstances, consumers buy more when the price of a commodity rises, and less when price falls. Many causes are attributed to an upward sloping demand curve.

(i) War:

If shortage is feared in anticipation of war, people may start buying for building stocks or for hoarding even when the price rises.

(ii) Depression:

During a depression, the prices of commodities are very low and the demand for them is also less. This is because of the lack of purchasing power with consumers.

(iii) Giffen Goods:

A ‘Giffen good’ is a special variety of inferior good. Sir Robert Giffen of Scotland observed in the 19th century (1840s) that poor people spent the major portion of their income on a staple item, viz., potato. If the price of this good rises they will become so poor that they will be found to spend less on other items and buy more potatoes in order to get a minimum diet and keep themselves alive.

For such goods, the demand curve will be upward sloping.

(iv) Demonstration Effect:

If consumers are affected by the principle of conspicuous consumption or demonstration effect, they will like to buy more of those commodities which confer distinction on the possessor, when their prices rise. On the other hand, with the fall in the prices of such articles, their demand falls, as is the case with diamonds.

(v) Ignorance Effect:

Consumers buy more at a higher price under the influence of the “ignorance effect”, where a commodity may be mistaken for some other commodity, due to deceptive packing, label, etc.

(vi) Speculation:

 Speculation is one of the important exceptions to the downward sloping demand curve. According to him, the law of demand does not apply to the demand in a campaign between groups of speculators. When a group unloads a great quantity of a thing on to the market, the price falls and the other group begins buying it. When it has raised the price of the thing, it arranges to sell a great deal quietly. Thus when price rises, demand also increases.

(vii) Necessities of Life:

Normally, the law of demand does not apply on necessities of life such as food, cloth,medicine etc. Even the price of these goods increases, the consumer does not reduce their demand. Rather, he purchases them even the prices of these goods increase often by reducing the demand for comfortable goods. This is also a reason that the demand curve slopes upwards to the right.

Snob Appeal or Veblen Good:

People sometimes buy certain commodities like diamonds at high prices not due to their intrinsic worth but for a different reason. The basic object is to display their riches to the other members of the community to which they themselves belong.It act as a status symbol good.This is known as ‘snob appeal’, which induces people to purchase items of conspicuous consumption. Such a commodity is also known as Veblen good (named after the economist Thorstein Veblen) whose demand rises when its price rises.This is a genuine exception to the law of demand. The demand curve for such an item will be upward sloping.Thus if, the price of diamond falls, people will buy less of it. In a word, purchasers value diamonds and other costly items because of their prices and because of the psychic satisfaction that they derive from it.

Highly Essential Good:

Finally, in case of certain highly essential items such as life- saving drugs, people buy a fixed quantity at all possible price. The requirement of medicine will lead the consumer to buy it at higher price no by how much price it get increased.