Anomaly in demand analysis: exceptional case

Hi everyone, here is some food for thought; something closely related to what we have learnt, yet exceptional in its own right: an anomaly in demand analysis, encompassing a very unique case.

First of all, let's recap on some demand concepts. Demand is the relationship indicating the quantity of a well-defined good or service that consumers are willing and able to buy at each possible price during a given period of time, ceteris paribus. A demand curve, with the y-axis being price of good and x-axis being quantity of good, would be downward sloping with a negative gradient. For every unit increase in price, the quantity of the good demanded by consumers would decrease theoretically, and vice versa. As such, changes in prices of goods would result in a movement along the demand curve, signifying a change in the quantity of good demanded. The law of demand states that an inverse relationship exists between the price of a good and the quantity demanded of the good, ceteris paribus.

This is something that we are all very familar with. However, this is not always the case. The demand curve need not always have a negative gradient. There are times whereby the demand curve can be upward sloping with a positive gradient! Surprised? Be surprised no more.

A very prominent example illustrating this anomaly in demand analysis would be Griffin goods. What are Griffin goods? A Griffin good is a product whose demand increases as the price goes up. This can be seen as an unusual economic phenomenon, because it actually defies the law of demand. In the case of Griffin goods, a direct relationship exists between the price of the good and the quantity demanded of the good, ceteris paribus. Why is this so?

The reason behind this anomaly is actually very simple: perceptions on the Griffin good by its consumers. For some goods, its consumers may buy more if its price is higher. To them, the price of the good could be an indicator or a label of its quality or useability; the higher its price, the higher its perceived intrinsic value and thus the more of such consumers buy it. For example, a particular brand of beer may not sell very well if it is priced low because consumers may think its low price indicates its poor quality. However, if the price of such goods are higher, consumers may want to buy more of it because they may feel their high prices depicts them as being "valuable". Thus as price of the good rises, quantity demanded also rises in these cases because consumers feel that higher prices are a measure of increasing quality or useability. This is a simple yet major exception to the law of demand as well as the shape of the demand curve for Griffin goods. Because quantity demanded rises together with price, one can infer that Griffin goods, most of the time, are likely to be luxury goods.

This is just one exceptional case to Economics; I will post more next time =D