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Question
Explain the following diagram with reference to the concept of Giffen goods.
The demand curve can slope upwards from left to right. Give one argument in support of this statement.
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Solution
Giffen products are inferior items whose demand increases as the price of a good rises. This is an exception to the Law of Demand.
For example, a commodity such as jowar is a requirement for poor people. When its price rises. Consumers are obliged to reduce their use of other items such as milk and meat, and since jowar is the cheapest, they will buy and consume more of it.
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RELATED QUESTIONS
State with reason whether you agree or disagree with the following statement:
When the prices of Giffen goods falls, demand for such goods rises.
PASSAGE
Mona visits a shopping mall near her residence. She shops for monthly groceries which include rice, wheat, sugar, cooking oil and pulses. She purchases additional quantities of sugar much more than her monthly requirement anticipating that prices may rise in the coming days due to festivities.
She observes two different qualities of tur dal out of which one quality is inferior and the other is superior. She does not purchase the low quality tur dal even though its price is comparatively lower. Instead she prefers to buy superior quality tur dal.
- Identify the exception to the law of demand in the given passage with reference to purchase of additional quantities of sugar much more than monthly requirement anticipating that prices may rise in the coming days due to festivities (1mark)
- Identify the kind of good with reference to low quality tur dal (1mark)
- Express your personal opinion based on the above information. (2 marks)
When price of Giffen goods fall, the demand for it increases.
State with reasons whether you agree or disagree with the following statement:
When price of Giffen goods fall, the demand for it increases.
Give one point each of similarity and dissimilarity between Giffen goods and Veblen goods.
What are Giffen goods?
Why are prestige good an exception to the law of demand?
Why do people buy more luxury goods when prices go up, defying the usual law of demand?
What happens to the demand for necessities like salt or electricity when their prices increase?
Which situation is an example of speculation affecting demand?
