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Many a time the inverse relationship between price and the amount purchased does not hold good. Explain this statement giving four reasons.

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Many a times the inverse relationship between price and the amount purchased does not hold good.

This statement means that sometimes quantity demanded of a commodity does not fall with a rise in price and vice-versa. Sometimes a consumer may demand more of a commodity at a higher price and less at a lower price. Such situations are termed as exceptions to the law of demand. It leads to an abnormal demand curve which is positively sloping.

1. Giffen Effect—Sir Robert Giffen observed that a typical inferior commodity consumed by the poor people may display an odd behaviour. When the price of such a commodity rises, the poor people may cut down on their purchases of other (more expansive) items and increase the purchases of this commodity. 

Example of Giffen goods Maize, Bajra. 

2. Conspicuous consumption—Some persons may consume a very expensive commodity just to show off and attract the attention of other people. In that case, its price and demand may more in the same direction. Diamond ornaments and expensive motor cars are examples of such goods. 

3. Snob effect—A consumer may try to show that he no longer belongs to a particular social class. This is known as snob effect. In case of a good typically consumed by the poor people, when its price falls, the consumer may decrease his purchase of this good in order to show that he no longer belongs to the class of the poor. 

4. Veblen Effect—Some people consider the price of a commodity as the true indicator of its quality. Hence, they purchase more of a commodity, with the increase in its price. They think that they are paying higher prices for having better quality goods. This is called the Veblen Effect.

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