2. Under what conditions can the law of demand be violated (however theoretical)? 23 - 100... (2024)

FAQs

Under what circ*mstances the law of demand can be violated? ›

When the negative income effect is stronger than the substitution effect, the quantity of commodity bought falls (rises) when its price falls (rises). This happens in the case of a Giffen good. In this case, the demand curve will be positively sloped. Hence, it violates the law of demand.

Can the Law of Demand Be Broken? Yes. In certain cases, an increase in demand doesn't affect prices in ways predicted by the law of demand. For instance, so-called Veblen goods are things for which demand increases as their price rises, as they are perceived as status symbols.

The taste and preference of the buyers are always the same. The three exceptions to the law of Demand are Giffen goods, Veblen effect, and income change.

Necessary Goods and Services

Another exception to the law of demand is necessary or basic goods. People will continue to buy necessities such as medicines or basic staples such as sugar or salt even if the price increases. The prices of these products do not affect their associated demand.

A Giffen good is a low-income, non-luxury product that defies standard economic and consumer demand theory. Demand for Giffen goods rises when the price rises and falls when the price falls.

There are no exceptions to this law of demand; its rules follow from syllogisms, or deductive logic, based on human action. A simplified description of this law is: as the true cost of acquiring a good increases, consumers tend to purchase less of it than they would have otherwise purchased.

In the case of inferior goods, the law of demand fails. Q. Giffen goods must be inferior goods, while inferior goods, may or may not be Giffen goods.

Two exceptions to the law of demand are:- 1) Articles of distinction: These articles are only demanded only when their prices are high. Thus, it violates the law of demand. 2) Giffen goods: Giffen goods are highly inferior goods. When the income of the consumer rises the demand for Giffen goods fall and vice-versa.

The law of demand sometimes does not hold true in certain situations. Four such instances are given below. Giffen Goods: Giffen goods are goods where an increase in price leads to an increase in the quantity demanded.

When the seller expects the price in the market to fall, the seller will sell at even low cost and this violates the law of supply. Perishable goods do not follow the law of demand. These goods must be sold immediately regardless of whether the price is high or low.

What are the limitations of the law of demand? ›

The common limitations of the law of demand are prestige goods, price expectations, consumer ignorance, non-luxury goods, and necessary goods. These are limitations to the law of demand because consumers tend to buy more or less of the goods even if the price is increasing or if the goods become outdated.

Essential or necessary products and services:

One more exception case for the law of demand is the essential or necessity goods and products. Individuals will keep on purchasing necessities, for example, medications or essential staples like salt, rice, and sugar, regardless of whether the cost increases.

Factors like the price of commodities, clients' preferences, and clients' expectations affect the demand for commodities. Nonetheless, there are exemptions to the law of demand which are Veblen goods, Giffen goods, and income changes.

If other determinants are not held constant, then the law of demand (or supply) is not true. For example, if prices increase due to an increase in demand, then the quantity demanded will also increase. Thus, the law of demand doesn't hold here but only because something else changed.

Consumer income, preferences, and willingness to substitute one product for another are among the most important determinants of demand.

When the seller expects the price in the market to fall, the seller will sell at even low cost and this violates the law of supply. Perishable goods do not follow the law of demand. These goods must be sold immediately regardless of whether the price is high or low.

Positively sloped demand curve violates the law of demand . It is found in case of giffen goods . These are those inferior goods in case of which income effect is negative and greater than substitution effect so that net effect points to a positive relation between price and quantity demanded of the commodity .