A Giffen goodA) is always the same as an inferior good.B) is the special subset of inferior goods in which the substitution effect dominates the income effect.C) is the special subset of inferior goods in which the income effect dominates the substitution effect.D) must have a downward sloping demand curve.

Question

A Giffen goodA)  is always the same as an inferior good.B)  is the special subset of inferior goods in which the substitution effect dominates the income effect.C)  is the special subset of inferior goods in which the income effect dominates the substitution effect.D)  must have a downward sloping demand curve.

Kayla Noelle · Accepted Answer

Final Answer : C, Explanation :  A Giffen good is a special subset of inferior goods in which the income effect dominates the substitution effect. This means that as the price of the good increases, consumers have less purchasing power, which causes them to buy even more of the inferior good due to the lack of affordable substitutes. A Giffen good results in an upward sloping demand curve, which is contrary to the typical downward sloping demand curve for most goods. Therefore, options A, B, and D are incorrect.

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