Giffen goods are:
Options
AInferior goods
BNormal goods
CLuxury goods
DNecessity goods
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Theory of Demand and SupplyPYQ - May 2018Question 39 of 20
All Questions Correct Answer
✅ Option a — Inferior goods
All Options:
- AInferior goods
- BNormal goods
- CLuxury goods
- DNecessity goods
Detailed Solution & Explanation
To understand Giffen goods, we need to consider the law of demand, which states that as the price of a good increases, the quantity demanded decreases, and vice versa.
• Giffen goods are an exception to this law, where an increase in price leads to an increase in the quantity demanded.
• This happens because Giffen goods are typically inferior goods, meaning they are low-quality or low-preference goods that people buy when they cannot afford better alternatives.
• When the price of an inferior good increases, people may buy more of it because they can no longer afford the superior alternative, so they have to rely more heavily on the inferior good.
The correct answer is related to inferior goods because Giffen goods exhibit this specific characteristic of inferior goods.
• Option B, normal goods, is incorrect because normal goods follow the law of demand, not the exception seen in Giffen goods.
• Option C, luxury goods, is also incorrect because luxury goods are high-preference goods that people buy when they have extra money, which is the opposite of how Giffen goods are consumed.
About This Chapter: Theory of Demand and Supply
Paper
Paper 4: Business Economics
Weightage
10%
Key Topics
Law of Demand/Supply, Elasticity, Consumer Behavior
One of the most important chapters in the entire CA Foundation Economics paper. It covers the Law of Demand, Law of Supply, Elasticity of Demand (Price, Income, and Cross), Consumer Behavior (Cardinal and Ordinal approaches), and the concept of Consumer Surplus. Understanding demand and supply curves and their shifts is essential for grasping market dynamics.
View Official ICAI SyllabusExam Strategy Tip
Master the difference between 'Change in Demand' (shift) and 'Change in Quantity Demanded' (movement). This distinction alone can secure 3-5 marks. Also practice Elasticity numerical calculations.
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More Questions from Theory of Demand and Supply
Identify the factor which generally keeps the price-elasticity of demand for a good low:
Supply is a concept:
Demand for a commodity refers to:
Contraction of demand is the result of:
All but one of the following are assumed to remain the same while drawing the demand curve for a commodity. Which one is it?
Which of the following pairs of goods is an example of substitutes?
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