Q4Managerial Economics & Financial Accounting
Question
2 marks
What is Giffen Paradox?
Answer
The Giffen Paradox is a rare exception to the Law of Demand where demand for an inferior good rises as its price rises.
Giffen Paradox: A rare exception to the Law of Demand where the demand for a highly inferior staple good increases when its price rises. This happens because the negative income effect heavily outweighs the substitution effect, forcing consumers to buy more of the staple (e.g., bread or potatoes during a famine).