Economics • Economic BasicsMedium
Which of the following describes 'Giffen Goods' in microeconomics?
A. Goods for which demand increases as consumer income increases.
B. Inferior goods for which the income effect outweighs the substitution effect, leading to an upward-sloping demand curve.✓ Correct Answer
C. Luxury goods consumed exclusively by high-income brackets to signal status.
D. Goods that have perfect substitutes in the market.
💡 Solution & Explanation
Giffen goods are a special category of inferior goods where the negative income effect of a price increase outweighs the substitution effect, resulting in an upward-sloping demand curve that violates the standard law of demand. Luxury items and normal goods follow standard downward-sloping demand curves where consumption rises with income. Sir Robert Giffen famously observed this phenomenon while studying consumption patterns during the Irish potato famine.
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