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A Giffen good is a good whose consumption increases as its price increases. (For a normal good, as the price increases, consumption decreases.) Thus, the demand curve will be upward instead of downward sloping.
A giffen good has an upward sloping demand curve because it is exceptionally inferior. It has a strong negative income elasticity of demand such that when a price changes the income effect outweighs the substitution effect and this leads to perverse demand curve.
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Because of the law of demand the demand curve always slopes?
given that the demand curve is for a normal good then this is the case as prices increase people will be willing to consume less of the good. If the good is a giffen good then this will not be the case an in fact the demand curve may either remain straight or will curve upwards as prices increase.
What is the relationship between Hicksian demand and Giffen goods in economics?
In economics, Hicksian demand refers to the quantity of a good or service that a consumer is willing to buy at a given price, assuming their income and preferences remain constant. Giffen goods are a rare type of good where the demand increases as the price rises, contradicting the law of demand. The relationship between Hicksian demand and Giffen goods is that Hicksian demand does not apply to Giffen goods because their demand does not follow the typical downward-sloping demand curve.
Why would demand curve slope upward?
The Law of Demand states that price and quantity demanded are inversely related. This means that for a normal good, the demand curve slopes downward. A demand curve might slope upward in the event that instead of being a normal good, we could be witnessing a so-called Giffen good. The existence of Giffen goods is debatable, but in theory they can be shown to be possible. The rationale for the upward sloping demand curve is due to the real income effect on a basket of goods when one (or some) of the goods exhibits a price reduction. Under normal conditions, the reduction in price would allow you to purchase more of that good. However, if this is a Giffen good, the consumer will consume less of it in order to purchase more of another good. This is not to be confused with an inferior good, for which a reduction in price leading to an increase in purchasing power results in substituting an inferior good (hamburger) in favour of a normal good (steak). This causes a shift in the demand curve. For Giffen goods, no close substitute would cause the consumer to spend less on the cheaper good in order to purchase more of a non-substitute good, say, pencils wherein the cost of rice is reduced.
What is the relationship between price and demand for a Giffen good?
The relationship between price and demand for a Giffen good is unique because as the price of the good increases, the demand for it also increases. This is contrary to the law of demand, where an increase in price leads to a decrease in demand.
What is a positive demand curve?
demand curve tends to be downward sloping (negative) for normal goods. for goods that are perceived to be of superior value to customer (like it serves as a status quo), the higher the price, the higher the quantity demanded. hence, giving a positive demand curve. there are called the veblen goods. Giffen goods also has a positive demand curve.
