A Giffen good has an upward-sloping demand curve which is contrary to the fundamental laws of demand which are based on a downward sloping demand curve. Demand for Giffen goods is heavily influenced by a lack of close substitutes and income pressures.
What causes shift in demand curve?
In addition to the factors which can affect individual demand there are three factors that can cause the market demand curve to shift: a change in the number of consumers, a change in the distribution of tastes among consumers, a change in the distribution of income among consumers with different tastes.
What does the downward sloping of the demand curve mean?
Downward sloping of demand curve-The demand of a product refers to the desire of acquiring it by the consumer but backed by his purchasing power and willingness to pay the price. The law of demand states that there is an inverse proportional relationship between price and demand of a commodity.
How does the substitution effect affect the demand curve?
Thus, when the quantity of goods is more, the marginal utility of the commodity is less. Thus, the consumer is not willing to pay more price for the commodity and its demand will decline. Also, when the price of the commodity is low, its demand increases. Hence, the demand curve slopes downwards from left to right. 2. Substitution effect
How is the demand curve related to income?
When the income of the consumer’s increases they purchase more goods and vice-versa. Thus, income and demand have a directly proportional relationship. This implies that the demand curve slopes upward from left to right. This holds true in case of superior or normal goods only. However, this is not the case of inferior goods.
What does the vertical axis of a demand curve mean?
The vertical axis of the graph represents the price of the good in question; the horizontal axis represents the quantity demanded. The two axes meet at zero in the lower left corner. A good with a prohibitively high price will appear on the graph toward the upper left – very high price, very low demand.
