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Price
Quantity
Assumptions underlying the Law of
demand
• No change in consumer’s Income
• No change in consumer’s preferences
• No change in the fashion
• No change in the Price of Related Goods
• No Expectation of future Price Changes or Shortages
• No change in Size, Age Composition and Sex ratio of the
population
Exceptions to law of demand
(a) Giffen goods: If there is an inferior good in whose case
the income effect is stronger than the substitution effect,
the law of demand would not hold.
(b) Commodities which are used as status symbols.-Some
expensive commodities like diamonds, air-conditioned
cars, etc.,are used as status symbols to display one’s
wealth.
(c) Expectations of change in the price of the commodity- If
a household expects the price of a commodity to
increase, it may start purchasing greater amount of the
commodity even at the presently increased price.
Contd.
B
6
47
D0
Quantity
Change in Demand
Price D0 to D1: Increase in Demand
6
D1
D0
7 13 Quantity
Reasons for change in demand
• A change in demand occurs when the basic conditions
of demand change.
1) Changes in income
2) Changes in tastes,habits and preference
3) Change in fashions and Customs
4) Change in distribution of wealth
5) Change in substitutes
6) Change in demand of position complementary
7) Change in population
8) Advertisement and Publicity Persuasion
Contd.