
Concept Introduction:
Giffen goods: All those goods whose quantity demanded increases with an increase in its
- It violates the
law of demand , which states that when prices increase, the demand for a good decreases. - It has an upward sloping curve, which is generally due to the substitution effects.
Example of Giffen good: Consider a situation in which a poor guy uses cereals for all the necessary nutrients so, as the price of a cereal increases, he demands less of other goods.
Substitution effects: It states that the demand of a good increases if the price of its substitute goods increase and vice versa. Take an example of tea and coffee, if prices of tea increase, then the demand for coffee will increase.
Income effects: It states that the demand for normal goods and the income are directly related which means that when income increases, then the demand for normal goods also increases and vice versa.

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Chapter 10 Solutions
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