There are exceptions to the law of demand, namely Giffen and inferior goods. Giffen goods are necessities whose demand increases when price rises because consumers prioritize purchasing them over other goods. Examples include staples like potatoes and rice for poor Victorian and Chinese consumers. Inferior goods are those whose demand increases when consumer income decreases as they are cheaper alternatives. Examples are cheaper cars and bus transportation being preferred over more expensive options when money is tight.

1. EXCEPTIONS TO
LAW OF
DEMAND
Submitted by
• SMEET JAIN

2. DEMAND
• Demand is desire/ want, backed by ability to pay.
• It is the amount of buyers who are willing to purchase the products and services at a
given price over a given period of time
LAW OF DEMAND
• Ceteris paribus, the quantity of goods demanded at a particular price, at a particular point
of time, varies inversely with its price.
Qd = f ( Px )
Demand for a commodity is the function of its price.

3. Exceptions
• Goods that obey the law of demand are normal goods.
• There are goods which doesn’t obey the law of demand
• Such goods are either superior goods or inferior goods
• Named as Veblen and Giffin goods respectively

4. Giffen Goods

5. • Giffen good is a good that which decreases in demand when consumer
income rises.
• Income elasticity is less than 0
• Giffen goods can be categorized into three.
a. necessary staple goods
VICTORIAN SOCIETY
• purchasing tendency of the poor Victorian subjects
• when the price of necessary staple goods such as bread, food grain,
vegetables, etc., rose, the poorer sections, concentrated all their purchasing
power on procuring the necessary staples.
• gave up on purchasing other goods
• This kept the demand for these good high despite an increase in their price.

6. THE THEORY OF
CONSUMER CHOICE
Application 1:
Giffen Goods

7. IRISH SOCIETY
• people were so poor
• as the price of potatoes rose, they started substituting
potatoes, a dietary staple, for meat and other unnecessary
luxuries.
• The Irish consumed more potatoes as a result.
CHINESE SOCIETY
• they consume more rice or noodles, their staples, as prices go up.
• People need a certain amount of calories to survive that can be either got by
consuming rice and some vegetables alone, or by eating rice, vegetables and a few
bites of meat.
• But meat is expensive. Poor Chinese can no longer afford the luxury of cooking
meat,
• So they eat rice instead, which is still relatively cheap compared to meat.
• This is Giffen behaviour in action.

8. b. inferior goods
• those for which the demand rises when the price to procure them forms a relatively
substantial part of the buyer's income without eating into the amount of income set
aside for the consumption of other regular items.
• Cheaper cars are examples of the inferior goods.
• generally prefer cheaper cars when their income is constricted.
• As a income increases the demand of the cheap cars will decrease,
while demand of costly cars will increase, so cheap cars are inferior goods.
• Inter-city bus service is also an example of an inferior good. This form of
transportation is cheaper than air or rail travel.
• When money is constricted, travelling by bus becomes more acceptable.
• but when money is more abundant than time, more rapid transport is preferred.

9. • Inexpensive foods like hamburger, mass-market beer, frozen dinners, and
canned goods.
• As incomes rise, one tends to purchase more expensive, appealing and
nutritious foods.
• Some inferior goods are so consistent that they can be seen as economic
indicators. One such example is instant noodles,
• increase in the Thai "Mama Noodles Index" (the number of the popular
Mama-brand instant noodles sold) in 2005,
• seen as a sign of weakness.