Abnormal demand

It is a situation in which people buy more and more goods as their prices increase. Therefore, the abnormal demand curve slopes upward from left to right as illustrated in figure 4.

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Exceptional demand curve

There are few exceptional cases when some people may act contrary to the first law of supply and demand: ‘the lower the price, the higher the quantity that would be demanded’. Some people buy more of a commodity when its price is either high or rising; and they buy little (less) or none as its price falls.

The following are the reasons why people refute (disobey) the first law of demand, or for the occurrence of exceptional demand curve. That is, these are the reasons why people buy at higher prices than at lower prices.

1) Inferior goods (giffen goods)

  • An inferior good is a commodity whose demand falls as income increases.
  • It is a commodity whose demand rises as income falls.
  • Its demand falls as income increases as people are now able to buy better similar items. And a fall in the prices of inferior goods don’t always lead to increase in their quantities demanded. Thus its demand curve shifts to the left or inward as illustrated in figure 8.

 

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2) Ostentatious goods (superior goods)

Some goods like jewellery, gold, lace and very expensive cars, e.g. Mercedes Benz, Jeep, etc, are mainly bought by rich people. And when these items become very cheap, and they are used by commoners (poor people) the rich refrain from (stop) using them.

That is, when their prices are quite high their demands are also high because the rich wish to distinguish themselves with them. Thus the higher the price, the higher the quantity demanded.

Note: Demand curve for luxurious goods (exceptional demand curve) is positively sloped.

 

3) Articles of Necessity

Certain goods are essential (compulsory) for human being’s existence because their absence makes life to be miserable or impossible. Therefore, they are acquired even though their prices are rising. In other words, the quantity bought virtually (almost) remains the same wherever the price either rising or falling.

They therefore refute the first law of demand and supply. They include salt, pepper, firewood or kerosene, water in desert, etc. They have vertical demand curve as illustrated in figure 5 below:-

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4) Expectation of future rise in price

At times people continue to buy more of certain goods even though their prices are rising because they expect higher prices in future. This is a very common thing at the beginning of the months (December and April) preceding international festivals, like Christmas and Easter.

Also the month (September) or week of resumption of schools witnesses increasing prices of textbooks. Parents always buy a large quantity of textbooks, and other stationery even though their prices are fast rising.

 

5) Epidemic /war period

Whenever there is a protracted war in a region or between countries, armament materials – war equipment: gun, bombs, nuclear warheads and other sophisticated war equipment tend to refute the first law of supply and demand. Even though their prices are rising, the people or states engulfed (involved) in the war demand more of them. Also during the period of epidemic, there is an increased demand for drugs in spite of continuous rise in their prices.

 

6) Ignorance of lower prices

Some consumers especially the rich ones don’t border to go round the market or know prices of goods at different shops before they buy their needs especially at the end of the month or during weekends. The ignorance (unawareness) of lower prices for substitutes (other similar goods) somewhere else makes them to buy a larger quantity of certain goods at higher prices.

 

7) Rare commodities

Certain goods, like antiques, sculptures, carvings, etc are demanded when their prices are high, but at low prices their demands fall. Thus (therefore), they have abnormal demand curve of high prices and- a normal demand curve of low prices as illustrated in figure 6.

 

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8) Others

The prices of certain goods are fixed; and they don’t change whenever there is a change in demand. Such goods include securities: shares, bills, stocks, etc. Their demand curve is, therefore, horizontal to the base line as illustrated in figure 7 above.

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