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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.


Team Careers360 6th Jan, 2024
Answer (1)
Team Careers360 8th Jan, 2024

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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