Question

If the demand curve is found to be positively sloped, what it could be due to? Give your answer in terms of nature of the commodity, income effect and substitution effect.

Answer 1

Positively sloped demand curve violates the law of demand. It is found in the case of Giffen goods. These are those inferior goods in case of which income effect is negative and greater than substitution effect so that net effect (or price effect) points to a positive relation between price and quantity demanded of the commodity. It contradicts the Law of Demand such that after a point when Price is lowered, the Demand is also reduced.