Demand and supply

ASSUMPTIONS OF LAW OF DEMAND 
We have stated above that the Law of Demand will apply when other things remain the same. 
These other things are called the assumptions of the Law of Demand. 
These assumptions are the following: — 
1. INCOME OF THE CONSUMER 
There should be no change in the incomes of the consumers when price of any commodity changes, because only in this case, law of demand will apply. If due to rise in price level, income also increases at the same time, consumer will not decrease the demand for this commodity, so law will not apply and vice-versa. 
2. TASTE AND PREFERENCES OF THE INDIVIDUAL 
There should be no change in the taste and preferences of the individuals, because if taste of any consumer changes, demand will not increase in spite of fall in price level. 
3. PRICE OF SUBSTITUTE COMMODITIES 
There should be no change in the prices of substitute commodities. If price of any substitute commodity changes the law of demand will not apply. For example, when price of tea rises and at the same time, price of coffee also rises, in that case, demand for tea may remain the same. 
4. FURTHER EXPECTED CHANGES 
If any further change is expected in the price of any commodity, law of demand will not apply. For example, if price of any commodity falls and it is expected that this price will further fall, in this case, the consumers will not purchase greater quantity of this commodity because they will wait for a further fall in price level. 
5. NEW INVENTION 
New goods must not be invented. If new goods are invented, in that case, in spite of a fall in the price of that commodity, demand will not increase. 
EXCEPTIONS OF THE LAW OF DEMAND 
In certain cases, Law of Demand does not apply. There are some demand curves that slope upwards from left to right showing that as prices of a product rise more is demanded and vice versa. These are known as exceptions of Law of Demand. These types of demand curves are known as regressive, exceptional or abnormal demand curves.
These may be also called the limitations of Law of Demand. 
The exceptions of the law of demand are the following: — 
Giffen Goods
In the case of Giffen Goods, Law does not apply be-cause in such cases due to fall in price level, demand decreases and vice-versa. In this case, Demand Curve moves from left to right upward. 
Giffen Goods refer to basic foodstuffs that constitute a high proportion of the budget of low-income families. When the price of a giffen good rises, the proportion of the total income of individuals who consume these giffen goods rises and since such consumers are worse off in real terms, they can no longer afford to consume other more expensive commodities like meat and fruits. To make up for the foods they can no longer afford to buy, they are likely to purchase more of basic foodstuffs. Conversely, when the price of basic foodstuffs falls, they become better off in real terms and are likely to buy more of relatively more expensive foodstuffs and less of basic foodstuffs.
Fear of a more drastic price change in the future
When there is fear of a more drastic price change in the future. This will cause consumers to increase their quantity demanded to avoid paying an even higher price in the future. This situation is often found in the stock exchange where there is often an increase in the demand for the shares of a company if its share price is expected to increase. 

Goods of ostentation (Veblen goods). 
These are commodities whose prices fall in the upper price ranges and that have a snob appeal. The wealthy are usually especially concerned about status, believing that only goods at high prices are worth buying and have the effect of distinguishing them from other consumers. In the case of such commodities, a firm increasing its prices may find that sales of its product increase and at lower prices less of the commodity may be bought as the commodity is rejected as being sub-standard. Consumers often in making comparisons between two similar products with different prices opt for the relatively more expensive one believing it to be better. Examples of goods of ostentation could be expensive perfumes and jewelry