Question

All Giffen goods are inferior goods, but all inferior goods are not Giffen goods. Explain.

Answer 1

Inferior goods are those goods for which superior substitute are available. The consumer may spend a large or small amount of their income on such inferior goods. Giffen goods are those inferior goods on which the consumer spends a large fraction of his income. For example, a poor consumer spends a large fraction of his income on the purchase of inferior food like jowar or maize. Giffen goods are exception to the law of demand as the quantity demanded for such goods falls with a fall in their price and rises with a rise in their price. However, in case of inferior goods on which the consumer spends a small fraction of his income, the quantity demanded may change in the opposite direction of change in its price.