Write a short note on giffen paradox
Answers
Answer:
According to the Law of Demand, when the price of a commodity falls the demand for it rises. Giffen's Paradox is an exception to this law. ... It is named after the 19th century British economist, Sir Robert Giffen, who found that when the price of bread fell, the demand for it also fell.
The Giffen Paradox is an exception to the law of demand which states an indirect relationship with price and demand as well as a direct relationship with income and demand. (When income increases, demand for a commodity also increases.) Giffen goods are nothing but inferior goods.
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Answer:
According to the Law of Demand, when the price of a commodity falls the demand for it rises. Giffen’s Paradox is an exception to this law. It is named after the 19th century British economist, Sir Robert Giffen, who found that when the price of bread fell, the demand for it also fell. This was because when the price fell, the real income of the consumer rose and she was in a position to buy better
The Giffen Paradox is an exception to the law of demand which states an indirect relationship with price and demand as well as a direct relationship with income and demand. (When income increases, demand for a commodity also increases.)
Giffen goods are nothing but inferior goods.
Now, demand for a product is a function of its price:
Qx = f(P)x
Where Qx is the quantity demanded and Px is the price of the product.
Giffen paradox consists of those scenarios that violate the above mentioned law.
Let's take an example of luxury goods like cars.
An increase in the income of the buyer would result in a perceived decrease in the price of a cheap car for the prospective buyer. He would, now that he can afford it, prefer to go for a comparatively expensive car rather than the cheap car although the latter costs less than the former. Here, the cheap car is an inferior good, not in terms of quality but in terms of perception. Here, the quality of life, expected to improve on acquisition of a superior quality item, is given preference rather than quality of good when making a purchase decision.ality/more bread.
Now X, a cheap is an inferior good in terms of perception of the buyer. An increase in the income of the buyer will decrease his demand for thag commodity. He would like to have less of inferior foods.
The demand curve of the commodity is shown by DD curve. With the rise in the income of the buyers, the quantity demanded of the commodity falls from OQ to OQ¹ at the same price OP. The demand curve shifts leftwards .
