Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
IB Economics Exceptions to the law of demand The Demand Curve The demand curve is a graph showing the amount of a good that people are willing and able to buy at different prices during a specific period of time. Price Demand Curve for Armando's Cappuccinos 25 20 15 10 5 0 0 20 40 60 80 Cups sold in a day 100 120 The Law of Demand There is a negative relationship between the price of a good and its quantity demanded, ceteris paribus. Exceptions to the law of demand Veblen (ostentatious) goods Giffen goods Expectations ►Both Veblen goods and Giffen goods have upward sloping demand curves there is a positive relationship between the price of a (Veblen /Giffen) good and its quantity demanded Veblen goods ► Veblen goods are also called status-symbol or ostentatious goods Price of a Veblen good D Quantity Demanded The elasticity of Veblen Goods ►Veblen goods are luxury goods YED >1 ►Veblen goods have a positive PED and a positive income elasticity of demand Giffen goods A Giffen good is an inferior that constitutes a large percentage of the very poor’s income. e.g. rice in china. Price of a Giffen good D Quantity Demanded ►A research paper by Jensen and Miller suggests that there is empirical evidence of Giffen behavior for rice in southern China and for noodles in the north of China. ► They noted that the very poor’s diet in China mainly consists of rice and meat in the south, and of noodles and meat in the north. Rice/Noodles Filling cheaper Meat more expensive ► They also noted that an increase in the price of rice results in an increase in rice consumption in the south, while an increase in the price of noodles results in an increase in noodle consumption in the north. ► This behavior could be attributed to the increase in the price of the giffen good resulting in a decrease in the income available to spend on the other good, which induces them to buy more of the giffen good, which is more filling. The elasticity of Giffen Goods ►Giffen goods are inferior goods YED<0 ►Giffen goods have a positive PED and a negative income elasticity of demand The role of expectations ►A price increase may induce people to buy more of a good if they expect the price to rise further in the future ► A price decrease may induce people to buy less of a good if they expect the price to fall further in the future e.g. the demand for cars in Egypt in 2005 The price fall did not result in an increase in car purchases as people expect the price to fall even further due to the (GATT) The End