Question

What do you understand by Giffen goods?

What is Giffen’s paradox?

Answer 1

• Giffen goods are a type of inferior good on which consumers typically spend a large portion of their income. Interestingly, when the price of such goods falls, their demand may also decrease, contrary to the law of demand.
• For example, if the price of an inferior food item like maize or bajra drops, the consumer’s real income effectively rises, allowing them to buy more expensive, superior food items. As a result, they may reduce their consumption of the cheaper, inferior goods.
•  This unusual behaviour, where a fall in price leads to a fall in demand, is known as Giffen’s paradox, and it serves as an exception to the standard law of demand.