Can the Demand Curve Ever Be Upward Sloping?

Most consumers prefer to pay lower prices for the goods and services they want. The so-called "law of demand" in economics recognizes this, holding that higher prices reduce demand for a good, and vice versa, other factors being equal. The demand curve visually depicts this on a graph. Because of the way the graph is set up, the curve typically slopes downward and to the right to illustrate a rise in demand as prices decline -- but the law of demand may have a loophole. In a few cases, higher prices may actually increase demand for some products and services, meaning that the demand curve would slope upward.

Economists display demand curves on a two-dimensional grid. The vertical axis represents price, going from low price at the bottom upwards toward higher prices. The horizontal axis represents quantity of demand, going from zero or a low number at the left toward higher quantity at the right. A downward sloping demand curve illustrates the law of demand, showing that demand increases as prices decrease, and vice versa. In contrast, a demand curve that slopes upward and to the right indicates that demand for a product increases as the price rises.

According to the Harper Collins Dictionary of Economics, economists have identified two reasons for an upward-sloping demand curve. These are conspicuous consumption, and products that economists refer to as "Giffen goods."

Conspicuous consumption is a phenomenon in which consumers purchase luxury items because of the status associated with them. For example, some consumers may purchase luxury automobiles or high-end designer apparel because such items may identify them as persons of wealth or taste. These consumers may have higher demand for expensive items because of a belief that the high prices confer status on these goods. This idea has its roots in the work of 19th century economist and sociologist Thorstein Veblen, who coined the term conspicuous consumption in his 1899 book, "The Theory of the Leisure Class."

Economists use the term "inferior goods" to refer to products and services for which consumers reduce their consumption as their incomes rise. Examples may include tickets for public buses, according to Harvard economist Greg Mankiw. As incomes rise, consumers may substitute automobiles for rides on city buses. Some inferior goods may show higher demand as prices increase. Such products are called Giffen goods, after economist Robert Giffen. With Giffen goods, higher prices increase demand, usually because the goods in question represent such a large proportion of a consumer's budget.

Economists disagree on whether actual Giffen goods have existed in economic history. Some economic historians suggest that potatoes were Giffen goods during the Irish potato famine in the 19th century, according to Mankiw. Potatoes were such a staple of the Irish diet that higher prices caused many people to cut back on other foods, such as meat, to buy more potatoes, thus raising demand for potatoes despite the higher prices resulting from the famine.