Q.Giffen goods are an exception to the Law of Demand because:

Giffen goods and Veblen goods are both exceptions to the Law of Demand, but for two different underlying reasons — this question tests which reason belongs to which exception. …

A price change normally works through two separate effects: the substitution effect (buyers switch toward the now-relatively-cheaper good) and the income effect (a price fall raises real purchasing power, and vice versa). For almost all goods, both effects push quantity demanded in the same direction as a price fall, which is exactly why the Law of Demand normally holds. For a Giffen good — a strongly inferior staple forming a large part of a very poor household's budget — a price rise so sharply reduces real income that the household is forced to buy more of the cheap staple, cutting back on other, superior food, just to maintain its basic food intake; here the income effect is strong enough to overpower the normal substitution effect, so demand for the staple rises as its price rises. Option (b) describes the opposite, which is what happens for ordinary goods, not Giffen goods. Option (a) is false — the whole …

Students often mix up the Giffen-good explanation (income effect, poverty, staple food) with the Veblen-good explanation (prestige/status), since both are 'exceptions where demand rises w …