Economics • Economic BasicsHard
What does the 'Giffen Good' paradox describe in consumer demand theory?
A. An inferior good for which an increase in its price leads to an increase in the quantity demanded, violating the law of demand due to a dominant income effect.✓ Correct Answer
B. A luxury good whose demand increases exponentially as consumer income rises.
C. A normal good that experiences zero price elasticity across all income brackets.
D. A good that has perfect substitutes, resulting in infinite price elasticity.
💡 Solution & Explanation
A Giffen good is an inferior product for which price increases lead paradoxically to higher consumer demand because the negative income effect completely overwhelms the substitution effect. Normal luxury goods follow the standard downward-sloping demand curve where higher prices reduce quantities demanded. Economics questions often cite staple food items consumed by the very poor as historical examples of this economic paradox.
More Economics Economic Basics questions
- What structural economic disadvantage do the remote hill districts of Uttarakhand face regarding transport…
- Evaluate the concept of Total Factor Productivity (TFP) in economic growth accounting. What does TFP measure?
- In the context of international trade theory, what does the Stolper-Samuelson Theorem predict regarding…
- In international trade theory, what does the 'Prebisch-Singer Thesis' postulate regarding the terms of trade…
- Which of the following market structures is characterized by a single seller, no close substitutes, and high…