Question

Giffin goods are ______.

Options

• normal goods, whose demand falls with a rise in their prices

• inferior goods, whose demand falls with increase in the income of the consumer

• inferior goods, whose demand falls with a fall in their price

• superior goods, whose demand falls with a fall in income

Answer 1

Giffin goods are inferior goods, whose demand falls with a fall in their price.

Explanation:

• Giffen goods are a special type of inferior goods that show an exception to the law of demand.
• In the case of Giffen goods, when the price falls, the demand also falls, and when the price rises, the demand increases.
• This unusual behaviour occurs because the income effect of a price change is stronger than the substitution effect.