Prices of other goods should remain constant Changes in the prices of other goods often impinge on the demand for a particular commodity. The prices of these goods are so high that they are beyond the reach of the common man. Some of the Important Exceptions are: 1. A higher wage rate enables the worker to maintain his existing material standard of living with less work, and he may prefer extra leisure to more wages. This is called Veblen effect. For example, diamonds, gold, antique paintings, etc.
According to Veblen, some consumers measure the utility of a commodity entirely by its price i. Fear of being out of fashion As we know that quantity supplied of a commodity is affected by fashion, taste and preferences of the consumer, technology and time. These situations concerned with conspicuous and different consumptions. Conspicuous necessities: Certain things become the necessities of modern life. Economists call some of these and others Veblen goods. These cases are referred to as exceptions to the general law of demand.
Tastes and preferences of the consumer remain the same. Cheaper varieties of goods like low priced rice, low priced bread, etc. There are several inferior commodities, much cheaper than the superior substitutes often consumed by the poor households as an essential commodity. A commodity cannot be taxed if its sales fall to great extent. The quantity purchased is less even though there is falls in prices.
For example, commodities like rice, wheat, salt, medicines, etc. Exceptions to Law of Demand : As a general rule, demand curve slopes downwards, showing the inverse relationship between price and quantity demanded. Sellers who are in need of cash If the seller is in need of hard cash, he may sell his product at a price which may even be below the market price. It shows that when price of a good falls, its demand rises. Thus this expectation or speculation constitutes another exception to the Law of Demand.
Hence, the law of demand operates only when the market for a commodity is not threatened by new substitutes. Demand of poor people The income of people is not the same, The rich people have money to buy same commodity at high prices. It refers to substitution of one commodity in place of another commodity when it becomes relatively cheaper. When the prices are rising households tend to purchase large quantities of the commodity out of the apprehension that prices may still go up. Supply is said to decrease when less is offered in the market without a change in the price of the commodity. Some people will also buy fewer diamonds when the price falls.
This causes the demand curve slope downwards from left to right. For example, staple foods like rice, when the price of rice rises then people with less income will spend less on other superior foods and instead buy more rice. These things have become the symbol of status. The selling price of Bajra is Rs 5 per kg, and the rice is Rs 10 per kg, and the household spends its total income of Rs 200 on the purchase of these items. When price of a commodity falls, it becomes relatively cheaper than other commodities. These other things which are assumed to be constant are the tastes and preferences of the consumer, the income of the consumer, and the prices of related goods. Broad toe on the other hand, will have more customers even though its price may be going up.
For example pen and refill. Since more is demanded at a lower price and less is demanded at a higher price, the demand curve slopes downward to the right. There is a inverse relationship between price of the commodity and quantity demanded for that commodity which causes demand curve to slope downward from left to right. This is against the law of demand. It means with an increase in price of substitute goods, the demand for given commodity also rises and vice-versa.
People apprehend a further rise in price in the future. 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. It may however be mentioned here that there are two factors due to which quantity demanded increases when price falls: 1 Income effect, 2 Substitution effect. This substitution effect is more important than the income effect. It is based on factor other than price. If any change occurs in any of these other factors, the whole demand schedule or demand curve will change and new demand schedule or a demand curve will have to be drawn.