Q1. Which of the following is NOT an exception to the 'Law of Demand'?
- (a) Giffen goods
- (b) Conspicuous goods
- (c) Speculative goods
- (d) Substitute goods
Answer & solution
Answer: (d) Substitute goods
The Law of Demand states that as price rises, quantity demanded falls. Exceptions are goods that violate this (demand rises as price rises). Substitute goods are NOT an exception — if the price of one good rises, demand for that good falls (law holds) , and demand shifts to its substitute. The substitute itself also follows the law of demand normally.
Option 1 (Giffen goods): An inferior good where a price rise causes demand to increase — a direct exception to the law of demand (e.g., bread for the poor).
Option 2 (Conspicuous/Veblen goods): Luxury goods consumed for status; demand rises with price because higher price signals greater prestige.
Option 3 (Speculative goods): When buyers expect prices to rise further (e.g., gold, stocks), they buy more even at higher prices — violating the law of demand.