ABSTRACT
A fundamental premise of economics is the law of demand. A commodity obeys this law if people are willing to buy more, the lower the price per unit. Commodities that disobey this law seem to threaten the foundation of economics. Such commodities attract the attention of scholars who study whether these do indeed constitute counter-examples to the law of demand. A famous example is Giffen’s Paradox described by Alfred Marshall. It alleges that the demand for bread violates the law of demand. Despite Marshall’s exalted standing, his defense of this Paradox encountered resistance. It was pointed out that the law of demand presumes real income is held constant while the effect of price on quantity demanded is explored. Otherwise an income effect can confound the price effect on the quantity demanded. It is theoretically possible to find a positive relation between quantity demanded and price if real income drops with a rise in the price of the commodity, but only if the commodity is an inferior good. An inferior good means that a rise in income reduces the quantity demanded.
