explain difference between giffen and inferior gods

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What are Giffen Goods?

The law of demand states that the demand for goods and services increase as prices fall and the demand falls as prices increase. This is because people purchase less of a product when the prices are high and more of a product when the prices are low. Demand falls with high price as people will start purchasing substitute products that cost less. Giffen goods are special types of products for which the traditional law of demand does not apply. Instead of switching to cheaper substitutes, consumers demand more of giffen goods when the price increases and less of it when the price decreases.

What are Inferior Goods?

Inferior goods take into consideration the income effect. According to the income effect, as an individual’s income increases the demand for goods and services will also increase. However, that is not the case for inferior goods because people will purchase less of the product as income increases and more of the product as income falls. The reason for this is that, as an individual’s income increases, they are able to spend more money on a product that is of better quality, and will be able to switch to a better quality product rather than using the inferior product.

Giffen Goods vs Inferior Goods

Giffen goods and inferior goods are very similar to each other in that giffen goods are special types of inferior goods. Both these types of products do not follow the general demand patterns laid out in economics and are, therefore, special types of products that are treated differently by consumers as market prices and income levels change. Giffen goods are goods for which demand will fall when price falls as people do not tend to purchase more of a giffen good even if prices are low because they will look for better alternatives, or will spend their money on something else. As income rises people will spend less on inferior goods as they can now afford more expensive, better quality alternatives.