Economics • Economic BasicsMedium
In the study of consumer choice, how does a Giffen good defy the standard Law of Demand?
A. Demand falls as consumer income increases while price remains constant
B. Demand rises when its price increases due to an overwhelming negative income effect✓ Correct Answer
C. Demand remains completely unresponsive to any fluctuations in market prices
D. Demand moves inversely with price only when substitute goods are unavailable
💡 Solution & Explanation
A Giffen good is an inferior product for which the negative income effect of a price increase outweighs the substitution effect, causing consumers to buy more of it as its price rises. This unusual behavior creates an upward-sloping demand curve, contradicting the standard law of demand where price and quantity move inversely. Other choices describe normal goods, perfectly inelastic demand curves, or standard inferior goods without the specific net positive price-quantity relationship. The concept is a cornerstone of advanced consumer theory.
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