Reasons for Exceptional Demand Curve and Extension and Contraction of Demand

Reasons for Exceptional Demand Curve:1. Giffen Paradox: The Giffen good or inferior good is an exception to the law of demand. When the price of an inferior good falls, the poor will buy less and vice versa. 2. Veblen or Demonstration effect:Veblen has explained the exceptional demand curve through his doctrine of conspicuous consumption. Rich people buy certain goods because it gives social distinction or prestige.
For example, diamonds.
3. Ignorance: Sometimes, the quality of the commodity is judged by it’s price.Consumers think that the product is superior if the price is high. As such they buy more at a higher price.
4. Speculative effect: If the price of the
commodity is increasing then the consumers will buy more of it because of the expectation that it will increase still further. Eg stock markets.
5. Fear of shortage: During times of emergency or war, people may expect shortage of a commodity and so buy more.Extension and Contraction of Demand:
The changes in the quantity demanded
for a commodity due to the change in its price alone are called “Extension and Contraction of Demand”. In other words,
buying more at a lower price and less at a
higher price is known as “Extension and
Contraction of Demand”.

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