Question

Q. Which of the following goods is/are an exception to the law of demand?

Select the correct answer using the code given below.

• A. 1 only
• B. 2 only
• C. 1 and 3 only
• D. 1, 2 and 3

Answer 1

The correct option is D 1, 2 and 3

Explanation:

There are certain exceptions to the law of demand. Some important exceptions are discussed below:

Snob Appeal or Veblen good:

• People sometimes buy certain commodities like diamonds at high prices not due to their intrinsic worth but for a different reason. The basic object is to display their riches to the other members of the community to which they themselves belong.
• This is known as ‘snob appeal’, which induces people to purchase items of conspicuous consumption.
• Such a commodity is also known as Veblen good (named after the economist Thorstein Veblen) whose demand rises (falls) when its price rises (falls).

Giffen Good:

• A ‘Giffen good’ is a special variety of inferior goods. Sir Robert Giffen of Scotland observed in the 19th century (the 1840s) that poor people spent the major portion of their income on a staple item, viz., potato.
• If the price of this good rises they will become so poor that they will be found to spend less on other items and buy more potatoes in order to get a minimum diet and keep themselves alive.
• For such goods, the demand curve will be upward sloping.

Highly Essential Goods:

• Finally, in the case of certain highly essential items such as life-saving drugs, people buy a fixed quantity at all possible prices.
• Heart patients will buy the same quantity of essential medicine whether the price is high or low. Their response to price change is almost nil.
• In the case of such commodities, the demand curve is likely to be a vertical straight line.