GENERAL KNOWLEDGE

Detailed explanation-1: -In the case of a Giffen good, the positive income effect is stronger than the negative substitution effect so that the consumer buys less of it when its price falls.

Detailed explanation-2: -Therefore, Giffen goods exhibit a negative income elasticity of demand – like inferior goods – but a positive price elasticity of demand, like certain luxury goods (specifically Veblen goods). Giffen goods are usually staple food products that people rely on to survive, like rice and wheat.

Detailed explanation-3: -For a Giffen good, the income effect must be negative; that is a fall in income increases demand. This effect must, furthermore, be strong enough to outweigh the substitution effect whereby higher prices induce consumers to switch away from this good.