Explain the Exceptional Demand Curve

Question

Explain the Exceptional Demand Curve.

Answer 1

Exceptions to the Law of Demand are as follows:
The fundamental feature of demand curve is negative sloping. However, there are some exceptions to it. In certain conditions demand curve may slope upward by left to right (positive slopes). Such phenomena may because of:

1) Giffen paradox:
The Giffen goods are inferior goods is an exception to the law of demand. While the price of inferior good reduces, the poor will buy less and may be vice versa. While the price of maize falls, the poor will not buy this more but they are willing to spend more on greater goods than on maize. Therefore fall in price will result in reduction in quantity. Such paradox is first explained by Sir Robert Giffen.

2) Veblen or Demonstration effect:
In the opinion of Veblen, rich people buy certain goods due to its social distinction or status. Diamonds and other luxurious article are purchased by rich people because of its high prestige value. Therefore higher the price of these articles, higher will be the demand.

3) Ignorance:
Sometimes consumers think such as the product is superior or quality is high when the price of that product is high. So, they buy more at high price.

4) Speculative Effect:
While the price of commodity is increasing, then the consumer buy more of this due to the fear that it will increase further yet.

5) Fear of Shortage:
Throughout the time of emergency or war, people may expect shortage of commodity and buy more at higher price to remain stock for future.

6) Necessaries:
In the case of necessaries as rice and vegetables, people buy more even at a higher price.

7) Brand Loyalty:
While consumer is brand loyal to specific product or psychological attachment to exact product, they will continue to buy these products even at a higher price.

8) Festival, Marriage etc.
In definite occasions as festivals, marriage and so forth, people will buy more even at high price.