When the price of bread decreases, the real income of the consumers would increase and they can afford to buy a more expensive item (here, meat), thus, the demand for bread decreases. Hence such good which exhibit direct price – demand relationship are called 'Giffen goods'.

Direct Price-Demand Relationship

Direct price-demand relationship is a situation where the demand for a product increases as the price increases, and vice versa. This is contrary to the traditional law of demand where demand decreases as price increases.

Giffen Goods

Giffen goods are a rare type of inferior goods that exhibit a direct price-demand relationship. These goods are considered inferior because as their price increases, consumers who are already struggling to make ends meet will have to allocate more of their income to the purchase of the good. This means that as the price of the good increases, the consumer's purchasing power decreases, and they will have to reduce their consumption of other goods.

In the case of Giffen goods, the increased price of the good creates a perception of higher quality, and consumers will demand more of the good as its price increases. This means that as the price of Giffen goods increases, the quantity demanded also increases.

Examples of Giffen goods include staple food items such as rice and potatoes in developing countries. As the price of rice or potatoes increases, low-income consumers will have to allocate more of their income to these staple foods, reducing their consumption of other goods. This creates a situation where the demand for rice or potatoes increases as their price increases, leading to a direct price-demand relationship.

Conclusion

In conclusion, Giffen goods are a rare type of inferior goods that exhibit a direct price-demand relationship. As the price of these goods increases, consumers perceive them as higher quality, leading to an increase in demand. Examples of Giffen goods include staple food items in developing countries.

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