Question

A Giffen good is a good for which price and quantity demanded are positively related. A Giffen good arises when:_______.

a. the income effect and the substitution effect move quantity demanded in opposite directions, with the income effect outweighing the substitution effect.
b. the income effect and the substitution effect move quantity demanded in opposite directions, with the substitution effect outweighing the income effect.
c. the income effect and the substitution effect move quantity demanded in the same direction, with the income effect outweighing the substitution effect.
d. the income effect and the substitution effect move quantity demanded in the same direction, with the substitution effect outweighing the income effect.

Answer 1

a

Step-by-step explanation:

A giffen good is a good whose quantity demanded increases with price increase and reduces with price decreases. This leads to an upward sloping demand curve which is not in line with the law of demand

Example of a giffen good is bread.

For a giffen good there would a negative income effect and a positive substitution effect but the income effect would outweigh the substitution effect