Economics • Economic BasicsMedium
What does the 'Giffen Good' paradox represent in microeconomics?
A. An inferior good for which an increase in its price leads to an increase in the quantity demanded, violating the standard law of demand.✓ Correct Answer
B. A normal good whose income effect reinforces its substitution effect.
C. A luxury item that consumers buy exclusively to signal wealth and social status.
D. A perfectly elastic product traded in an oligopolistic market.
💡 Solution & Explanation
A Giffen good represents a severe inferior commodity where a price hike triggers an overwhelming positive income effect that surpasses the substitution effect, expanding the overall quantity demanded. Normal goods always follow the standard downward-sloping demand curve, unlike these paradoxical staple items studied in economic theory. Sir Robert Giffen originally observed this phenomenon concerning low-income consumer behavior during scarcity.
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