Explain how the following phenomena are exceptions to the Law of Deman

1.	Explain how the following phenomena are exceptions to the Law of Demand: (i) Expectations regarding future prices. (ii) Conspicuous consumption by a consumer.
Answer» Expectations regarding future prices: If the price of a commodity is rising today and it is likely to rise more in the future, people will buy more even at the existing price and store it up. They will do this in order to avoid the pinch of higher prices in the future. Similarly, when large fall in the price of a commodity is anticipated, consumers will postpone their purchase even if the prices fall today so as to purchase this commodity at a still lower price in future. Conspicuous consumption: The law of demand does not apply to status symbol commodities termed as Veblen. These goods are demanded more at higher prices by (rich) consumers to increase their social prestige or as a source of display of wealth or richness. For example, diamond.

Explain how the following phenomena are exceptions to the Law of Demand: (i) Expectations regarding future prices. (ii) Conspicuous consumption by a consumer.

Answer»

Expectations regarding future prices: If the price of a commodity is rising today and it is likely to rise more in the future, people will buy more even at the existing price and store it up. They will do this in order to avoid the pinch of higher prices in the future. Similarly, when large fall in the price of a commodity is anticipated, consumers will postpone their purchase even if the prices fall today so as to purchase this commodity at a still lower price in future.

Conspicuous consumption: The law of demand does not apply to status symbol commodities termed as Veblen. These goods are demanded more at higher prices by (rich) consumers to increase their social prestige or as a source of display of wealth or richness. For example, diamond.

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