Question

What is meant by Giffen goods?

Answer 1

Giffen goods (Inferior goods):

• When price of certain goods namely inferior goods fall and the real income of a consumer rises he may reduce the consumption of such goods and substitute them with goods of superior quality.
• It was Robert Giffen who made these observations and explained this concept. Hence, these goods i.e. inferior goods are also called Giffen goods. Such goods are necessary goods and are purchased by the low-income groups.

Example:

• A person with low income purchases grains such as Jowar or Bajra for his daily diet. When the price of Jowar/Bajra falls drastically, the real income of the consumer tends to increase.
• Hence, he will reduce consumption of such goods and will purchase more of wheat which is the superior good.
• Another example is that of vegetable (vanaspati) ghee and pure ghee.