Gujarat BoardEnglish MediumSTD 11 CommerceEconomicsDemand3 Marks
Question
Explain the exceptions to the law of demand.
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Answer
As per the law of’ demand, when the price rises the demand falls and vice-versa. However, for some goods there are exceptions to this law.
Under this exception, when price of a good falls, its demand also falls instead of rising and vice-versa. Thus, change in price creates demand to change in opposite direction than that indicated in the law of demand.
Examples of such goods are:
$1.$ Prestigious goods:
Certain goods which are priced very high and are generally consumed by very rich people like, expensive jewelry, expensive cars, expensive mobile phones, etc. are considered prestigious goods.
Such goods are used by the rich as status symbols. Even if their price rises their demand expands instead of contracting.
On the other hand, if their price falls, the rich may contract their demand and avoid buying such goods with a mindset that a fall in price means that the good is losing its prestige and will now be in reach of even common people.
Examples of such products are Mercedes car, iPhone, etc.
$2.$ Extremely low-priced goods:
Certain goods are extremely low-priced. The consumer spends a very small proportion of his income on these products. For example, pins, stapler pins, toffee, etc.
Even if price of such goods rise consumer’s demand for these goods may not fall. Similarly, if their price falls, the consumer may not expand his demand as he may not need more of such goods than his actual need.
$3.$ Giffen goods $($Inferior goods$)$:
When price of certain goods namely inferior goods fall and the real income of a consumer rises he may reduce the consumption of such goods and substitute them with goods of superior quality.
It was Robert Giffen who made these observations and explained this concept. Hence, these goods i.e. inferior goods are also called Giffen goods. Such goods are necessary goods and are purchased by the low-income groups.
Example:
A person with low income purchases grains such as Jowar or Bajra for his daily diet. When the price of Jowar/Bajra falls drastically, the real income of the consumer tends to increase.
Hence, he will reduce consumption of such goods and will purchase more of wheat which is the superior good.
Another example is that of vegetable $($vanaspati$)$ ghee and pure ghee.
$4.$ Special preferences of people:
At times, people get very accustomed and used to certain goods. They cannot do with any other good. Even if there is some rise in the price of their preferred goods, their demand may not decrease.
Example:
A specific brand of Ketchup, tooth paste, shoes, etc.
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