Page 60 - 6727

Economic Theory

more potatoes when their prices increased and vice versa. This is called
Giffen Paradox.
2. In case of conspicuous consumption, as observed by Thorstein
Veblen, the demand curve does not slope downwards. Sometimes people

buy some products to show their status in the society. The possession of
such commodities, they feel, may confer a higher level of social status on

their holder. These goods are diamonds and other precious stones etc. Rich
class buys such goods at very high price to show that they belong to a
prestigious class.
3. The law of demand also not applies to a commodity whose quality

is judged by its high price. At high prices, some people buy more of such
commodity than at lower price thinking that high priced are better than
those priced lower. This is out of sheer ignorance that people act in such a

way.
4. Speculation (a guesswork or prediction of a future event and act
accordingly) is another exception to the law of demand. If the price of
commodity is increasing and people expect a further rise in the price, they

will tend to buy more of the commodity at higher price than they did at the
lower price. It is observed that when there is a hike in edible oil prices
recently, some people purchased more of it in the expectation that future

prices will be even more.
Is demand the same as quantity demanded? In economic
terminology, demand is not the same as quantity demanded. When
economists talk about demand, they mean the relationship between a range

of prices and the quantities demanded at those prices, as illustrated by a
demand curve or a demand schedule. Economists frequently refer to the

shift that occurs in response to a change in the good’s own price as a
change in the quantity demanded of a good from point to point along a
single demand function. But the entire function can also shift for reasons
other than a change in the good’s own price.

There are five “classic” demand function shifters that shift the entire
demand function to the right or left. Table 5.1 shows the classic list of
demand function shifters (determinants of demand).

60