2019 · Q21
Which one of the following is not an assumption in the law of demand?
General KnowledgeIndian Economy
- AThere are no changes in the taste and preferences of consumers.
- BIncome of consumers remains constant.
- CConsumers are affected by demonstration effect.
- DThere are no changes in the price of substitute goods.
Explanation
The law of demand rests on the ceteris paribus assumption that all determinants of demand other than the price of the commodity remain constant. These assumptions include unchanged tastes and preferences of consumers, constant income, and unchanged prices of substitute and complementary goods. The demonstration effect, by which consumers imitate the consumption of others, changes tastes and therefore contradicts the assumptions. Hence option C is the exception.