Giffen Good: 

An exception to the law of demand is the Giffen good. A Giffen Good is a good whose demand increases when the price rises and demand decreases when the price falls. The existence of such goods was put forward by the economist Robert Giffen, who observed that, under some circumstances, the poor consumed more bread as its price rises. While is it considered to be a theoretical concept mainly, but there have been goods with this property. A Giffen good is an extreme type of inferior good. The negative income effect of changes in price of a Giffen good is actual stronger than the substitution effect. This leads to its rather peculiar quality that when the price of a Giffen good rises, consumers actually buy more. To understand how this happens, an example of a Giffen good for which there is the best evidence that it is a Giffen good can be considered- people in China’s Hunan province bought more rice when they had to buy it at a higher price, and less when the price they paid was subsidised. The reason for this is that, even when expensive, rice was still the cheapest source of food available. Therefore, when the price of rice was cut, people had more money left over after buying rice. Some of this was spent on buying more expensive foods (meat, vegetables and fruit), which reduced their need for rice. Another classic example of a Giffen good that was used for many years was potatoes during the Irish potato famine. One problem with this was partly a lack of data to prove it was a Giffen good. More essentially, given that the price rises were caused by lower supply, there is still considerable doubt about how could people have been consuming more. Giffen goods may be very rare, but the fact that some exist is important.