Theory of Demand and Supply: Exceptions and Analysis

Running head: DIPLOMA OF BUSINESS ADMINISTRATION
Diploma of Business Administration
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1DIPLOMA OF BUSINESS ADMINISTRATION
Introduction
One of the key and basic theories being used in the microeconomics is the theory of
demand and supply. This is due to the reason that, these theories states the key economic factors
that determines the demand and supply of commodities in the market. However, there are various
exceptions also with these theories. This essay will discuss about the about the concepts of
demand and supply by analyzing two related articles along with discussing the exceptions to this
theories.
Theory of demand
According to the theory of demand, there is an inverse relationship between the price and
the demand of the commodities. Thus, with the increase in the price, demand for the
commodities get decreased and vice versa. This is due to the reason that, with the increase in the
price of the products, purchasing power of the consumers gets reduced.

2DIPLOMA OF BUSINESS ADMINISTRATION
Figure: 1
Demand curve
According to the above demand curve, when the prices of the product get reduced from
80 to 60, quantity demanded by the consumers gets increased from 300 to 500. Thus, the point of
intersection changes from ‘A’ to ‘B’. Due to this reason, demand curve is always downward
sloping. According to (Forbes, 2017), there is a significant growth seen in the air traffic in the
last few years due to the reason of reduction in the price of air travel. Thus, according to the
theory of demand, with the reduction in the price of the air travel, the demand got increased.
Exceptions of demand theory
There are various exceptions of the theory of demand, where price and quantity
demanded goes in same direction. One of the exceptions is the Veblen effect. According to this
concept, in the case of the luxurious items, people tend to buy more of it when the price increases
further. This is due to the reason that, when the price increases, it owns some exclusive value and
vice versa. Thus, people tend to buy more of those in order to enhance their prestige value in the
society.