1) Which of the following explains an exception to the law of demand? a. High value of a commodity in the consumption basket b. High utility of commodity c. Uncertainty about the change in price in future d. Availability of Substitute
Answers
Answer:
Exceptions to the Law of Demand
Normally the law of demand applies to a large number of goods. However, there are some circumstances when the law of demand does not apply which are known as Exceptions to the law of demand.
Browse more Topics under Basic Elements Of Demand And Supply
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Law of Demand
Demand Schedule
Individual and Market Demand Curve
Change in Demand
Concept and Determinants of Supply
Law of Supply
Supply Schedule
Individual and Market Supply Curve
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Exceptions to Law of Supply
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Price Elasticity of Supply
Some of the important exceptions to the law of demand are as follows:-
1.Expected change in the price of goods
Quantity demanded of a product increases if it is expected that there will be a rise in the price of the product. Consumers postpone their purchases when fall in price is expected.
2. Type of Goods
Inferior Goods: Generally low-quality goods are consumed by the poorer sections of society. Inferior goods are consumed by poor consumers for their survival. Consumers move to better quality goods with an increase in income.
Also, if the income of consumers falls they might shift from good quality products to inferior goods or may reduce the demand for such goods.
For example, with an increase in income, a poor consumer (who is from a low-income group) shifts his demand from grains to better qualities of cereals.
Giffen Goods: Giffen goods are cheaper varieties of inferior goods. This category covers cheaper varieties like bajra, low priced rice, low priced bread, cheaper vegetable like potatoes. Due to the lack of substitute consumers consume these goods even at a high price.
Ignorance: Good quality commodities are costly and expensive is a myth among consumer. It also happens when consumers are unable to judge the quality of the products.
Conspicuous Consumption (Goods having Prestige value): Consumers are attracted by distinct and costly goods. These are treated as a sign of prestige. The consumer buys more of such product if the price of such product is high.
For example – Diamond. Only rich consumers can buy a diamond. The price of such product is beyond the capacity of the normal consumer. If the diamond is very costly (expensive) it will be considered as more prestigious.
The consumer will buy fewer diamonds if the price of diamonds is low because, with the fall in price, its prestige value goes down whereas; the consumer will buy more diamonds if the price increases.
exceptions to the law of demand
3. Change in Fashion
Change in fashion and taste affects the demand for a commodity. When he considers that goods are out of fashion, the law of demand becomes ineffective. Once the commodity goes out of fashion, consumers resist buying more even if the price falls.
For example, Consumers do not buy old fashioned clothes even if they are available at low prices or discounted price. Consumers prefer current fashionable clothes even if they are available at high prices.
4. Complementary Goods
Complementary goods are another exception to the law of demand. For Example: – Demand of DVD player increases due to falling in its prices; demand for DVD’s will also increase irrespective of its high price.
Solved Example on Exceptions to Law of Demand
A consumer consumes an inferior commodity when his income:
Becomes nil
Remains the same
Falls
Rises
Ans: 4. Rises
This is because when the income of a consumer rises he buys goods of better quality rather spending more on inferior goods.
Answer:
availability of substitute