According to the law of demand, 'other things remaining constant, demand varies inversely as price.' the law may not be applicable in some cases. Some such exceptions to the law are:
1. Inferior goods ( less preferred goods ) - By inferior goods one does not refer to the quality of goods, as people normally do, but to the good itself compared with another (better liked good). These goods have a direct price – demand relationship.
This exception to the law was first put forward by Sir Robert Giffin in the 19th century in Ireland, and is known as 'Giffin's paradox'. Sir Giffin has taken an example to explain the paradox, that of bread in comparison to meat. Bread being less preferred is inferior when compared to meat.
When price of bread falls,( real income rises - the demand for bread need not increase) but people buy the same quantity of bread with less money therefore there is a saving and surplus money available. This surplus will be transferred to buying additional amount of meat (the more preferred good)
When price of bread rises, (real income falls - the demand for bread need not decrease) but people buy the same quantity of bread with more money therefore there is a deficit. Due to the deficit people will buy less amount of meat (the more preferred good) and transfer the money to buying bread.
Therefore, inferior goods are an exception to the law of demand.
2. Prestige goods: (snob appeal / show off goods) Prestige goods are those goods, on acquiring which, people get an exclusive status or prestige in society. It enables them to show off their wealth in an ostentatious way. They have a snob appeal. People buy them since others have the goods and not because they need them. This is called the demonstration effect. If the price of such goods rises, people will still buy them. This is because they want the prestige behind acquiring them. E.g.
3. Price illusion: When you pay a higher price for a product, the buyer is under the illusion that the quality of the good is high. Even if the prices of such goods increase, people buy the same amount of the goods due to the price illusion. These goods are an exception to the law of demand.eg here the consumer strongly believes that higher the price better the product.
4. Qualitative changes in the product. : When a buyer buys a commodity at a higher price due to an improvement in the quality of the good. It becomes an exception to the law of demand.
5. Inflationary & Deflationary pressure: If the price of a good increases and is expected to rise further in future people will buy more of the product in the present. and vice versa.
6. Fashions: Commodities are demanded irrespective of price when they are in fashion. Hence law demand becomes invalid..
7. Ignorance: When consumers are unaware of a change in price for a particular product they may buy the same amount of the product.
8. Necessaries: In spite of a rise in price, people will buy the same amount of necessities, as without these goods it is impossible to survive.
9. Demonstration effect –.People buy them since others have the goods and not because they need them. This is called the demonstration effect. if the price of such goods rises, people will still buy them. This is because they want the prestige behind acquiring them.
Eg The lower income group tends to imitate the consumption of the higher income groups. Therefore they also buy more goods at a higher price.
10. Complementary goods – If the price of one complement falls the demand for the other complement will rise without any change in its price. i.e the law of demand cannot be applied.