Question

State with reasons whether you agree or disagree with the following statement:

There is a direct relationship between the price of Giffen goods and its demand.

Options

• Agree

• Disagree

Answer 1

I agree with the above statement.

Reason:

1. Sir Robert Giffen of England observed that the Law of Demand does not apply to poorer-grade products (Giffen goods). When the price of Giffen goods declines, so does the buyer's real income. As a result, people want more high-quality goods.
2. When the price of vanaspati ghee lowers (its demand reduces), the demand for pure ghee rises.
3. As a result, a decrease in the price of Giffen commodities leads to a decrease in their demand, and vice versa.

Thus, there is a direct relationship between the price of Giffen goods and its demand.