Answer to Question #307823 in Microeconomics for Himanshu

Question

Explain in detail the price decomposition of a price rise in case of giffen goods.

Answer 1

Normally for any commodity, an increase in prices results in to decrease in demand, oppositely for the Giffen good, the law of demand is not applicable. Therefore, the utility of Giffen goods. Their demand increases when the price rises and falls when there is a price reduction. Examples of such commodities include bread, rice, and wheat. These goods are inferior and do not have any close substitutes. For instance; as the consumers’ income increases, the demand will not increase. This is because the consumer has more money for consumption, so they are left with a decision to spend a higher amount on other goods which are highly-priced than Giffen goods.