Law of Demand
The law of demand states that the demand for goods is dependent on their prices. A price increase will result in a decline in demand. Likewise, a price decrease will lead to a rise in demand. Such scenarios are what constitute the law of demand and are the reason the demand curve is usually downward sloping.
However, there are several instances whereby goods do not follow the law of demand. In most markets, there exist Giffen goods. Such goods are usually inferior and as their prices increase so does their demand. Giffen goods often translate to an upward-sloping demand curve. Economists have only been able to pinpoint a few examples of such goods throughout history. For instance, in 19th Century Ireland, the prices of potatoes increased but so did their demand. Potatoes were a staple crop in the Irish diet during that time. People responded by decreasing their expenditure on luxury items such as vegetables in order to have enough to purchase potatoes. Another example is rice in certain parts of China where regardless of price increases; the demand is always on the increase.
Another classification of items that do not follow the law of demand is the Veblen good. Goods in this classification are usually highly priced and are attractive to consumers mainly because of their expensive nature. People buy these goods because of the very nature of their high prices. They are conspicuous consumers who buy items solely for showing off. Luxury items such as expensive cars and jewelry, as well as magnanimous houses are examples of Veblen goods. The Rolls Royce Phantom is a classic example of a Veblen good whose demand increases with an increase in price.
Other economists argue that consumers purchase the Veblen goods out of pure ignorance. Such consumers associate the higher prices of these goods with higher quality. Overall, an increase in the price of a Veblen good translates to an increase in the demand of such a good. Conversely, a decrease in the price implies lower quality and lower status, which means less people, are willing to buy the good.