The Law of Demand:

• The law of demand states an inverse relationship between the price of a commodity and its quantity demanded, if other things remaining constant, i.e., at higher price, less quantity is demanded and at lower price, larger quantity is demanded.

Assumptions of the law of demand:

• The law of demand is based on the following important ceteris paribus assumptions:

• The money income of consumer should remain the same.

• There should be no change in the scale of preference (taste, habit & fashion) of the consumer.

• There should be no change in the price of substitute goods.

• There should be no expectation of price changes of the commodity in near future.

• The commodity under question should not be prestigious or of snob appeal.

Upward sloping Demand curve:

• Sometimes, the law of demand may not hold true, although rarely. In such a situation, a consumer may purchase more at higher price and less at lower price.

• In this unusual condition, demand curve will be upward sloping from left to the right as shown below:

Few real exceptions to the law of Demand:

Giffen goods:

• In case of such goods, the income effect is negative and it is stronger than positive substitution effect. Examples of such goods are coarse grain like jowar, bajra and coarse cloth.

Articles of Distinction/Snob appeal:

• They satisfy aristocratic desire to preserve exclusiveness for unique goods- such goods are purchased only by few highly rich people for snob appeal.

• For instance, very costly diamonds, rare paintings, Rolls-Royce- cars and antique items. These goods are called ―veblen goods‖ after the name of an American economist.

Consumers psychological bias or illusion:

• About the quality of commodity with price change. They feel that high priced goods are better quality goods and low price goods are inferior goods.

• The sale of second edition of the book increased tremendously inspite of rise in its price, though the book contained the same photographs without any change.

• The law of demand does not apply in case of life saving essential goods and also in times of extraordinary circumstances like inflation, deflation, war and other natural calamities.

• The law also does not hold true in case of speculative demand. Stock markets are the fine examples of speculative demand.