Suppose the price of a Giffen good, X, increases. In this case, the substitution effect states that the consumer purchases _____ of good X, and the total effect is _____ in consumption of good X.

Question

Quizplus · Accepted Answer

For a Giffen good, the substitution effect leads to purchasing less of good X when its price increases. However, the total effect results in an increase in consumption due to the strong income effect that outweighs the substitution effect.

Suppose the Price of a Giffen Good, X, Increases