Explanation:

Demand is the quantity of a good or service that consumers are willing and able to buy at a given price and time. In a normal situation, when the price of a good increases, the demand for that good decreases and when the price of a good decreases, the demand for that good increases. This is known as the law of demand. However, the Giffen paradox is an exception to this law of demand.

Giffen paradox:

The Giffen paradox is a situation in which an increase in the price of a good leads to an increase in the quantity demanded of that good. This is a paradox because it contradicts the law of demand. The Giffen paradox was first observed by Sir Robert Giffen, a Scottish economist, in the 19th century.

Example:

One of the most common examples of the Giffen paradox is the potato famine in Ireland in the mid-19th century. During this time, the price of potatoes increased due to a shortage of potatoes. Since potatoes were the main source of food for the poor in Ireland, they had to spend a larger proportion of their income on buying potatoes. As a result, they had less money left to buy other goods. Since the price of other goods did not change, the poor had to reduce their consumption of these goods. However, they increased their consumption of potatoes because they had no other option. This led to an increase in the quantity demanded of potatoes even though their price had increased.

Conclusion:

Thus, the Giffen paradox is an exception to the law of demand. It occurs when a good is an inferior good and there are no close substitutes for that good. In such a situation, an increase in the price of the good leads to an increase in the quantity demanded of that good.