A normal good is a good the demand for which increases as income increases.

The income effect is

positive and the substitution effect is positive. Therefore as price increases, demand falls, and vice versa.
Normal goods have a positive income elasticity of demand.

An inferior good is a good the demand for which decreases as income increases. An inferior goods has a
negative income elasticity of demand. The income effect is negative, but is outweighed by a positive
substitution effect. Therefore as prices increase, demand falls, and vice versa.

A Giffen good is a good where the income effect is so negative as to completely outweigh the
substitution effect. As prices increase, demand increases, and vice versa. This means that Giffen goods
would have a positive price elasticity of demand. The main idea here is that Giffen goods are essential
and have no close substitutes, so as their price increases, disposable income is switched away from
other goods and towards the Giffen good.

In consumer theory, an inferior good is a good that decreases in demand when consumer income rises,
unlike normal goods, for which the opposite is observed.[1] It is a good that consumers demand
increases when their income increases. [2] Inferiority, in this sense, is an observable fact relating to
affordability rather than a statement about the quality of the good. As a rule, too much of a good thing
is easily achieved with such goods, and as more costly substitutes that offer more pleasure or at least
variety become available, the use of the inferior goods diminishes.

Inferior goods, by nature, decrease in quantity demanded as the income of a person rises. This can be
seen as a "negative" income effect, where income and the quantity of the good purchased are inversely
related. Giffen goods, or goods that increase in quantity demanded as price increases, have a similar
income effect, where the increased price can be seen as causing a relatively "lower" income for the
person.

The key difference between the two is that Giffen goods have no close substitutes. In classic
microeconomics there is the "income effect" as I described earlier and the "substitution effect".
Logically, nobody should buy a Giffen good if the price is higher because there should substitutes for
that good. However, Giffen goods are defined as goods with no close substitutes, so when price
changes, the income effect dominates the substitution effect (which is essentially nonexistent). In
contrast, the same cannot be said about all inferior goods, most of which have substitutes. Thus when
evaluating inferior goods both the income and substitution effect play a role.

Bottom line: Giffen goods have essentially no substitutes while inferior goods do.
Sir Robert Giffen (22 July 1837 – 12 April 1910), was a Scottish statistician and economist.