What best defines a Giffen good?

A Giffen good is indeed defined as a type of inferior good for which the demand increases as its price rises, which occurs due to the peculiar interaction between the income effect and the substitution effect. Specifically, when the price of a Giffen good rises, it makes consumers effectively poorer. This decrease in real income leads them to buy more of the Giffen good instead of more expensive substitutes, despite the price increase. The strong income effect here outweighs the substitution effect, which would typically lead to a decrease in quantity demanded when prices rise.

This behavior is counterintuitive compared to most goods, where demand decreases with an increase in price, highlighting the unique characteristics of Giffen goods within the context of consumer behavior and economic theory. The understanding of Giffen goods illustrates important concepts in microeconomics regarding how income changes and substitution relationships can affect demand curves in unconventional ways.