Answer to Question #98378 in Microeconomics for Mehwish ibrar

Question

What is normal inferior and giffen goods?

Answer 1

Inferior goods means an increase in income causes a fall in demand. It is a good with a negative income elasticity of demand . An example of an inferior good is Tesco value bread. When your income rises you buy less Tesco value bread and more high quality, organic bread. Giffen goods means an increase in price causes an increase in demand. The reason is that the income effect of a rise in the price causes you to buy more of this cheap good because you can’t afford more expensive goods. For example, if the price of wheat rises, a poor peasant may not be able to afford meat anymore, so has to buy more wheat.