What are Giffen Goods - Economics UPSC notes

Giffen goods are an important concept in economics, often discussed in the context of demand theory, and are relevant for the UPSC syllabus, particularly under the sections of Economics (Prelims and Mains GS Paper III). Here's an overview: What are Giffen Goods? Definition: Giffen goods are a type of inferior good for which demand increases as the price rises and decreases as the price falls, contrary to the law of demand. Named After: The concept was first identified by Scottish economist Sir Robert Giffen in the 19th century. Key Characteristics of Giffen Goods Inferior Goods: Giffen goods are a subset of inferior goods, meaning consumers buy more of them as their income decreases. No Close Substitutes: These goods typically do not have close substitutes. Income Effect Dominates Substitution Effect: The income effect (the change in consumption due to the change in purchasing power) outweighs the substitution effect (the tendency to switch to cheaper substitutes when prices rise). Essent…