Giffen good

A Giffen good is an exception to the typical consumer behavior observed in microeconomics. Normally, as the price of a good rises, consumers buy less of it and switch to substitutes. However, for a Giffen good, the opposite occurs due to a strong income effect that outweighs the substitution effect.

The income effect for Giffen goods is particularly pronounced because they are inferior goods. As prices rise, consumers with lower incomes have less purchasing power and must buy more of the cheaper, inferior good to maintain their consumption levels. This leads to an increase in demand despite the higher price.

An example of a Giffen good is bread in certain economic conditions. When bread prices increase, people with lower incomes may buy more bread instead of more expensive substitutes like meat, leading to an increase in bread consumption as its price rises.