What are the exceptions to the law of demand?

In one line

The rule

The Law of Demand states that, all else being equal, as the price of a good or service decreases, the quantity demanded increases, and vice versa. This means there is an inverse relationship between price and quantity demanded.

The formula: Qd = f(P)

• Qd = quantity demanded
• P = price

But there are exceptions — cases where this rule does not work.

Let's understand it simply

Imagine you are at the market. Usually, if the price of onions goes up, you buy less. But what if you see a fancy brand of rice that is very expensive? Some people might buy it just because it is costly — they think it must be special. Or, think of a poor family who eats only bajra (millet). If bajra becomes costlier, they cannot afford wheat or rice, so they buy even more bajra, not less. These are exceptions.

How it works

1. Giffen Goods: For some basic goods, when the price rises, poor people may buy more, as they cannot afford better foods.
2. Veblen Goods: Some items are bought for their high price, like luxury cars or designer sarees. Higher price makes them more desirable.
3. Necessities: For things you cannot live without (like salt or medicines), you may buy the same amount even if the price goes up.
4. Speculation: If people think prices will rise even more, they may buy more now, even at a higher price.
5. Emergencies or Panic: During a flood or lockdown, people may rush to buy essentials, even if prices shoot up.

The story behind it

The law of demand was first described by economists in the 19th century. But in 1892, Sir Robert Giffen, a British economist, noticed that poor families in Ireland bought more bread when its price rose, because they could not afford meat or vegetables. This led to the idea of Giffen goods. Later, Thorstein Veblen, an American economist, described Veblen goods — luxury items people buy to show off.

Where you see it in real life

• Bajra or bread for the poor: If bajra becomes costly, poor families may buy more because they cannot afford anything else (Giffen good).
• Luxury cars or gold jewellery: Some people buy more when the price rises, to show status (Veblen good).
• Salt or insulin: Even if the price doubles, people buy the same amount, as they cannot do without it (necessity).
• Buying onions during a shortage: When news spreads that onion prices will rise, people may buy more now, fearing higher prices later (speculation).
• Panic buying during lockdown: People bought large amounts of rice and flour, even at high prices, fearing shortage (emergency).
• Branded clothes: Some buy more when prices go up, thinking higher price means better quality (Veblen effect).

Why it matters

• Helps understand why some markets do not behave as expected.
• Important for government policy — to know which goods need price controls.
• Useful for businesses to set prices for luxury or essential goods.
• Appears in exams and higher studies — helps you spot exceptions in real data.

Common mistakes

• Thinking all goods obey the law: Some goods (Giffen, Veblen, necessities) do not.
• Mixing up Giffen and Veblen goods: Giffen are basic goods for the poor; Veblen are luxury goods for the rich.
• Assuming demand always falls with price rise: Not true for necessities and during emergencies.
• Forgetting about speculation: Sometimes, people buy more at higher prices if they expect prices to rise further.

Remember it

Not all goods follow the law of demand — remember Giffen (poor), Veblen (rich), and necessities (must-have) as exceptions.