Important of law of demand
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1. Giffen Goods:
These are special kind of inferior goods on which the consumer spends a large part of his income and their demand rises with an increase in price and demand falls with decrease in price. For example, in our country, it is often seen that when price of coarse cereals like jowar and bajra falls, the consumers have a tendency to spend less on them and shift over to superior cereals like wheat and rice. This phenomenon, popularly known as’ Giffen’s Paradox’ was first observed by Sir Robert Giffen.
2. Status Symbol Goods or Goods of Ostentation:
The exception relates to certain prestige goods which are used as status symbols. For example, diamonds, gold, antique paintings, etc. are bought due to the prestige they confer upon the possessor. These are wanted by the rich persons for prestige and distinction. The higher the price, the higher will be the demand for such goods.
3. Fear of Shortage:
If the consumers expect a shortage or scarcity of a particular commodity in the near future, then they would start buying more and more of that commodity in the current period even if their prices are rising. The consumers demand more due to fear of further rise in prices. For example, during emergencies like war, famines, etc., consumers demand goods even at higher prices due to fear of shortage and general insecurity.
4. Ignorance:
Consumers may buy more of a commodity at a higher price when they are ignorant of the prevailing prices of the commodity in the market.
5. Fashion related goods:
Goods related to fashion do not follow the law of demand and their demand increases even with a rise in their prices. For example, if any particular type of dress is in fashion, then demand for such dress will increase even if its price is rising.
6. Necessities of Life:
Another exception occurs in the use of such commodities, which become necessities of life due to their constant use. For example, commodities like rice, wheat, salt, medicines, etc. are purchased even if their prices increase.
7. Change in Weather:
With change in season/weather, demand for certain commodities also changes, irrespective of any change in their prices. For example, demand for umbrellas increases in rainy season even with an increase in their prices. It must be noted that in normal conditions and considering the given assumptions, ‘Law of Demand’ is universally applicable.
These are special kind of inferior goods on which the consumer spends a large part of his income and their demand rises with an increase in price and demand falls with decrease in price. For example, in our country, it is often seen that when price of coarse cereals like jowar and bajra falls, the consumers have a tendency to spend less on them and shift over to superior cereals like wheat and rice. This phenomenon, popularly known as’ Giffen’s Paradox’ was first observed by Sir Robert Giffen.
2. Status Symbol Goods or Goods of Ostentation:
The exception relates to certain prestige goods which are used as status symbols. For example, diamonds, gold, antique paintings, etc. are bought due to the prestige they confer upon the possessor. These are wanted by the rich persons for prestige and distinction. The higher the price, the higher will be the demand for such goods.
3. Fear of Shortage:
If the consumers expect a shortage or scarcity of a particular commodity in the near future, then they would start buying more and more of that commodity in the current period even if their prices are rising. The consumers demand more due to fear of further rise in prices. For example, during emergencies like war, famines, etc., consumers demand goods even at higher prices due to fear of shortage and general insecurity.
4. Ignorance:
Consumers may buy more of a commodity at a higher price when they are ignorant of the prevailing prices of the commodity in the market.
5. Fashion related goods:
Goods related to fashion do not follow the law of demand and their demand increases even with a rise in their prices. For example, if any particular type of dress is in fashion, then demand for such dress will increase even if its price is rising.
6. Necessities of Life:
Another exception occurs in the use of such commodities, which become necessities of life due to their constant use. For example, commodities like rice, wheat, salt, medicines, etc. are purchased even if their prices increase.
7. Change in Weather:
With change in season/weather, demand for certain commodities also changes, irrespective of any change in their prices. For example, demand for umbrellas increases in rainy season even with an increase in their prices. It must be noted that in normal conditions and considering the given assumptions, ‘Law of Demand’ is universally applicable.
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