UGC NET COMMERCE June 2019 Q16
- Option : C
- Explanation : Giffen Paradox: The Positively Slopped Demand Curve: If the commodity in question is an inferior good, the increase in real income resulting from the reduction in its price will lead the consumer to purchase less, not more, of the commodity.
Thus, the income effect will be negative while the substitution effect continues to be positive to lead the consumer to purchase more of the commodity when its price falls. For most of the inferior goods, the positive substitution effect will be more than offset the negative income effect so that the demand curve is negatively sloped.
However, in the very rare case when the consumer spends so much on the inferior commodity that the strong negative income effect overwhelms the positive substitution effect the quantity demanded of the commodity will fall when its price falls and rise when its price rises.
In other words, the demand curve in this case will be positively sloped. The commodity in question is then called a Giffen goods, after the 19th century English economist Robert Giffen, who first discussed it. This is what is called Giffen Paradox that makes the demand curve to have a positive slope.
