Question

law of demand and it's expectation
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Answer 1

In addition to Giffen and Veblen goods, another exception to the law of demand is the expectation of price change. There are times when the price of a product increases and market conditions are such that the product may get more expensive

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Answer 2

Answer:

price demand explains the relation between price and quantity demanded of a commodity. Price demand states that there is an inverse or negative relationship between the price and quantity demanded of a commodity at a point of time. It is assumed here that other things such as consumer's income, prices of substitute, price of complementaries, tastes and preferences of the consumer, etc. remain constant. The quantity demanded of a particular commodity depends on its prices, being other things remaining constant.

Marshall defines the law of demand as "the amount demanded increases with a fall in price and diminishes with a rise in price when other things remain the same."

The law of demand explains the relationship between the price and quantity demanded of a commodity. Demand varies with price;in other words, if the price is low demand will be high and if the price is high demand will be low .

The law of demand can be expressed in :Dx=f(Px).

where ,Dx stands for demand for commodity 'x' ,'f' denotes functional relationship and Px denotes price of X .

Assumptions of the law :

• No change in income of the consumer.
• No change in tastes and preferences of the consumer
• No change in the price of substitutes and complementaries.
• No new substitutes enter into the market.
• No expectation of future change in prices

Exceptions:

The law of demand is a general statement stating that price and quantity demanded of a commodity are inversely related. But in certain situations, more will be demanded at a higher price and less will be demanded at a lower price.

Giffen's paradox :

Sir Robert Giffen observed that in England, people are behaving against the law of demand. He found that when price of bread is increased, people purchased more bread instead of reducing the consumption. These goods are called as Inferial goods or giffen goods.

Example: jowar, bread, rice ,wheat etc.

Veblen effect:

veblen has observed that people are behaving against the law of demand in case of prestigious goods. This concept was explained by him in his book called " The theory of the leisure class " . He started that goods like diamonds, platinum, gold etc. are consumed by people to exhibit their status. In this case ,people purchase more when the prices are high.

Speculation effect:

If there is an exception that prices will increases in future, the consumers will but more goods. So, this is contrary to the law of demand.

Illusion

In general, consumers develop a false idea that the goods having high prices will have high quality. If price of these goods decrease, people reduce consumption, thinking that there is reduction in quantity.