What characterizes Giffen goods?

Giffen goods are a unique class of inferior goods that demonstrate an increase in quantity demanded as their prices rise, which is contrary to the basic law of demand. This phenomenon can be explained by the income and substitution effects.

When the price of a Giffen good increases, it effectively reduces the real income of consumers, particularly low-income consumers who heavily depend on these goods for their basic needs. As a result, they are unable to afford more expensive substitutes and, instead, consume more of the Giffen good in order to maintain their consumption of essential items, thus leading to an increase in demand despite the rising price.

An essential aspect of Giffen goods is their nature as basic staples—typically representing fundamental necessities such as bread or rice—rather than luxury items or substitutes for luxury goods. This characteristic underscores why they behave differently from regular demand patterns, where prices and demand typically move in opposite directions.

In this case, the option accurately captures the essence of Giffen goods and identifies them as essential items for low-income consumers, whose demand rises in response to higher prices. This understanding differentiates Giffen goods from other types of goods and highlights their unique market behavior.