Our discussion of Demand and Supply is almost finished. The only unfinished business is exceptions to the laws of demand. We mentioned earlier that when we arrived here we would provide possible alternative explanations for some of these exceptions that are consistent with the law of demand.

First let's be sure we understand how it is that observers come to suspect that the law of demand is being violated. Consider the observations shown on the graph to the right. Suppose that when the price of some good is P₁, the quantity purchased is Q₁. At another time it is observed that when the product sells for an average price of P₂, Q₂ are sold, and Q₃ are bought at price P₃. These observations seem to violate the law of demand. Thus we label the curve on which these three observations lie the Apparent Demand Curve, D.

The three possible explanations for such an upward sloping demand curve we considered were the "snob effect," "price as an indicator of quality," and the possibility that the product is a Giffen good. We've said all we can about Giffen goods²⁷ until Chapter 4 so for now we will focus on these other two possibilities, though of course there may be other behaviors that can also lead to apparent exceptions to the law of demand.

See the Introduction, page 18 if you don't recall the discussion of Giffen goods.