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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
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B
2 only
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C
1 and 3 only
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D
1, 2 and 3
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Solution

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 Goods:

  • 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.

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