Theory question 103
Theory of DemandSection B (answer three questions only from this section)
A demand curve slopes downwards from left to right, but this may not always be so. Explain the statement.
Show the model answer
Normally (law of demand) more is bought at lower prices: substitution and income effects, diminishing marginal utility, new buyers enter at lower prices – so the curve slopes down from left to right.
Exceptions (abnormal/upward-sloping demand curves):
1. Giffen goods – inferior staples of the very poor; a rise in price makes them buy more.
2. Goods of ostentation/prestige (Veblen goods) – bought more when dearer.
3. Expectation of further price rises – people buy more now as price rises.
4. Speculative buying (e.g. shares).
5. Ignorance – consumers judge quality by price.
6. Necessities in times of scarcity/emergency.
A diagram of an upward-sloping (regressive) demand curve earns credit.
State the normal case first, then the exceptions.