Which of the following statements is correct? For a good to be a Giffen good we must have:
(i) the substitution effect larger than the income effect
(ii) the income effect larger than the substitution effect
(iii) the good as an inferior good
A)(i) only
B)(ii) only
C)(i) and (iii) only
D)(ii) and (iii) only

Question

Quizplus · Accepted Answer

For a good to be classified as a Giffen good, it must exhibit a positive relationship between price and quantity demanded. This occurs when the income effect, which is the change in consumption resulting from a change in real income, is larger than the substitution effect, which is the change in consumption patterns due to a change in relative prices. Additionally, Giffen goods are always inferior goods, meaning that demand for them increases as income decreases.

Which of the Following Statements Is Correct? for a Good