Question : Assertion: Giffen goods violate the law of demand.
Reason: Giffen goods are inferior goods for which the income effect dominates the substitution effect, resulting in an upward-sloping demand curve.
Option 1: Both the assertion and reason are true, and the reason is a correct explanation of the assertion.
Option 2: Both the assertion and reason are true, but the reason is not a correct explanation of the assertion.
Option 3: The assertion is true, but the reason is false.
Option 4: The assertion is false, but the reason is true.
Correct Answer: Both the assertion and reason are true, and the reason is a correct explanation of the assertion.
Solution : The correct answer is (a) Option A Both the assertion and reason are true, and the reason is a correct explanation of the assertion.
Giffen goods are indeed a type of inferior goods for which the income effect dominates the substitution effect. As a result, when the price of a Giffen good increases, the income effect leads to a decrease in the quantity demanded, while the substitution effect is relatively weak. This combination of effects results in an upward-sloping demand curve, which violates the typical downward-sloping relationship stated by the law of demand.
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