Law of Demand

The law of demand is not always right. In reality, the demand for some products increases with their prices while the demand for other products remains constant regardless of the change in price. In such conditions, the law of demand never holds.

The exceptions to the law of demand include; given goods, goods of ostentation, Veblen effect, snob effect and the bandwagon effect. Giffen goods are tangible commodities that people buy despite an increment in their prices due to lack of substitutes. The demand for these products remains constant regardless of the increase in their prices. Examples of such goods are barley, grain, and rice.


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Goods of ostentation, on the other hand, are those goods which serve as a status symbol. The consumers use them to display their wealth. The higher the prices of these commodities, the higher their value as a status symbol. Hence, the increase in their prices leads to a subsequent increase in their demand. Goods of ostentation are diamond, gold, air conditioned cars and expensive electronic gargets. Snob effect refers to a situation whereby a specific number of buyers purchase unique commodities to show their distinction from others. The demands for these products remain constant regardless of the change in prices. Lastly, bandwagon effect is a situation whereby preference for a product increases with increase in the number of the customers.

Consumer income level, consumer preference, prices of other related products and future expectations are some of the determinants of demand. For normal goods, an increase in consumer income leads to an increase in demand while for inferior or given goods an increase in income results into a fall in demand. The consumer’s current demand may increase if they expect a future increase in prices. However, if they expect future fall in prices their current demand reduces. Therefore we can conclude that the law of demand is not only affected by the types of goods but also the determinants of demand.

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