Some special varieties of inferior goods are termed as Giffen goods. Cheaper varieties of this category like bajra, cheaper vegetable like potato come under this category. A few goods like diamonds etc are purchased by the rich and wealthy sections of the society. The prices of these goods are so high that they are beyond the reach of the common man.
Certain things become the necessities of modern life. So we have to purchase them despite their high price. A consumer’s ignorance is another factor that at times induces him to purchase more of the commodity at a higher price. Emergencies like war, famine etc. negate the operation of the law of demand. Households also act speculators. A change in fashion and tastes affects the market for a commodity. When a broad toe shoe replaces a narrow toe, no amount of reduction in the price of the latter is sufficient to clear the stocks.
Though as a rule when the prices of normal goods rise, the demand for them decreases but there may be a few cases where the law may not operate.
(1) Prestige goods. There are certain commodities like diamond, sports, cars etc., . which are purchased as a mark of distinction in society. If the price of these goods rise, the demand for them may increase instead of falling.
(2) Price expectations. If people expect a further rise in the price of a particular commodity, they may buy more inspite of rise in price: The violation of the law in this case is only temporary.
(3) Ignorance of the consumer. If, the Consumer is ignorant *about the rise in price of goods, he may buy more at a higher price.
(4) Giffen goods. If the prices of basic goods, (potatoes, bajra, sugar etc) on which the poor spend a large part of their incomes declines, the poor increase the demand for superior goods, hence when the price of Giffen good falls, its demand also falls. There is a positive price effect in the case of Giffen goods. •
Summing up we can say that the limitations or exceptions of the law of demand stated above do not falsify the general law. It must operate.
Related Economics Topics
- Price effect when commodity X is a Giffen good
- Demand Curve Slopes Downward To The Right
- Law of demand
- Conditions of price discrimination
- Degrees of Price Discrimination