The answer as per NTA was option-4. Let us know if we've missed something.
Inferior good -> A good whose consumption decreases when income rises (negative income effect)
Giffen good -> A good whose consumption decreases when its price falls (upward sloping demand curve)
Giffen goods are a subset of inferior goods -> all Giffen goods are inferior, but not all inferior goods are Giffen goods.
| Observation | What it tells us |
|---|---|
| Price falls, demand falls | Demand curve slopes upward -- this is the definition of a Giffen good |
| Income rises, consumption rises | This is the behavior of a normal good (positive income effect) |
It cannot be answered correctly using standard NCERT theory because the two given conditions are mutually contradictory.
However, option-4 was awarded marks.