Does every demand curve slope downward?

What we all know is that, “When the price of a good rises, its demand falls and vice versa.” This is what is generally known as LAW OF DEMAND. Here we also make one assumption,  that all the other factors that affect the demand side like income of consumer,  taste and preferences,  prices of compliments and substitutes ,etc, are all kept constant.

Does Law Of Demand always hold true and all the demand curves slope downward?

Putting in simple words, the answer is NO. Whether the curve will be upward sloping or downward sloping, will depend upon the behavior of the consumers. Sometimes,  consumers violate the Law of Demand and buys more of good when its price increases.

Let’s take a simple example to understand how it works. Suppose a person consume two types of milk, toned and full cream.  Now, say the prices of toned milk have increased,which means now consumers are worse off, as their purchasing power have decreased. So,  instead of buying full cream milk, they will spend their more money income on buying toned milk.

This happend because in this case,  toned milk is a inferior good. Instead of buying less of toned milk,  consumer prefer to buy more of it and less of full cream.

Economists use the term ‘ Giffen Goods’ for such goods that violates the Law of Demand. Thus, demand curve for Giffen Goods slope upward.

In the case of giffen goods, the income effect dominates the substitution effect.

When the price of toned milk rises, the consumer is poorer. According to income effect, the consumer will want to buy less of full cream and more of toned. But, at the same time,  because toned has become comparatively expensive, substitution effect will make consumer buy more of full cream and less of toned.

However, in case of Giffen Goods, income effect dominates the substitution effect. So does happened in this particular case, and toned is a giffen good. Hence, demand curve slope upwards.

Thus, the above example makes it clear that it is not that all the demand curves will fall downward. Demand curve may fall downward or upward depending upon the taste and preferences of consumers. If substitution effect outweighs income effect,  the slope of curve will be positive, however, in the opposite case,  the slope will be negative.

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