Giffen goods:
A)are normal goods with a negative income effect.
B)are inferior goods with an income effect that is smaller in magnitude than the substitution effect.
C)are inferior goods with an income effect that is greater in magnitude than the substitution effect.
D)have downward sloping demand curves.

Question

Quizplus · Accepted Answer

Giffen goods are a special type of inferior goods for which the income effect dominates the substitution effect, resulting in a positively sloped demand curve. Giffen goods are inferior goods in which the quantity demanded increases with an increase in price. This goes against the usual law of demand. This is caused by the larger income effect, which outweighs the substitution effect.

Giffen Goods