Why do Giffen goods have positively sloped demand curves
A)They are inferior goods with no substitution effect.
B)They are normal goods with no substitution effect.
C)They are inferior goods for which the substitution effect outweighs the income effect.
D)They are inferior goods for which the income effect outweighs the substitution effect.

Question

Quizplus · Accepted Answer

Giffen goods are inferior goods for which the income effect outweighs the substitution effect. As the price of the good goes up, consumers feel poorer and have to spend more of their income on the good. This leads to a further decrease in their purchasing power, and they end up buying even more of the inferior good. This results in a positively sloped demand curve, where quantity demanded increases as price increases.

Why Do Giffen Goods Have Positively Sloped Demand Curves