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Giffen Goods

By | September 2012
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Answer-1
“WHILE ALL GIFFIN GOODS ARE INFERIOR GOODS, ALL INFERIOR GOODS ARE NOT GIFFEN GOODS” The above statement describes the relationship of giffen goods with inferior goods. Considering the statement, the features and properties of giffen goods and inferior goods need to be understood with respect to Law of Demand. The concept of giffen goods and of inferior goods is very important in Law of Demand which describes the changes in demand with respect to change in price of a commodity and income of a person. Law of Demand:

The Law of demand states that, other things remaining constant, the quantity demanded of a commodity decreases with rise in its price and increases with a fall in price. So there is an inverse relationship between price and quantity demanded of a commodity. The demand schedule and demand curve shows an inverse relationship between price and quantity demanded. It is relevant to mention that there are certain situations under which the Law of demand is not applicable. These exceptions are giffen goods, inferior goods, ignorance of consumer, emergent situations, change in fashion, conspicuous goods etc. The Law of demand holds for normal goods. However in case of inferior goods as well as for the giffen goods the inverse relationship is not applicable. Inferior goods:

Inferior goods are those goods when with an increase in the income of the consumer, the demand for goods decrease and vice versa. The income elasticity of demand for an inferior good is negative. And the curve between quantity demanded and income slopes downward. This is shown in the diagram given below.

Y
QUANTITY DEMANDED Fig-1- Curve between Quantity Demanded and Income0 INCOME X Example: When the income of a person is limited then he opts for the goods which are cheaper in market to fulfil the...
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