What are giffen goods? Explain with an example...
Giffen goods are those goods which are highly inferior in nature. Similar to the inferior goods, demand for Giffen goods also shares a negative relationship with the income.
For instance, suppose a household consumes margarine (highly inferior good) in place of butter. However, with an increase in the income of the household it shifts his demand from margarine to butter (normal good). This will reduce the demand for margarine even with a rise in the income of the household. Thus, here margarine will be considered as a giffen good.
A point to keep in mind is- All giffen goods can be inferior goods. But, all inferior goods can not be giffen goods.