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Why does abnormal demand curve alter the basic demand laws?

Economics Dec 10, 2020

Why does abnormal demand curve alter the basic demand laws?

Expert Solution

Abnormal demand curves do not obey the law of demand.

The law of demand states that holding all the other factors constant, the quantity demanded of a good or service increases as the price of the product falls and it decreases as the price increases. This basic law of demand is also expressed in the sign of the price elasticity of demand, which is negative.

An abnormal demand curve is positively sloped (in the case of Veblen and Giffen goods), indicating that the quantity demanded increases with an increase in price. This violates the basic law of demand that the quantity demanded should fall with an increase in the price. Also, the price elasticity of demand with an abnormal demand curve is positive.

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