For an inferior good,if the income effect more than offsets the substitution effect,we call that good
A) a Giffen good.
B) a normal good.
C) an inferior good.
D) a neutral good.

Question

Quizplus · Accepted Answer

An inferior good is a good whose demand decreases as income rises. When the price of an inferior good increases, consumers tend to substitute it with a higher-priced good. This is the substitution effect. However, the income effect of a price increase for an inferior good is such that the lower income of the consumer results in less quantity of even this inferior good being purchased. So the income effect overshadows the substitution effect, causing an increase in the quantity demanded of the good as its price increases. This situation is uncommon, and such goods are called Giffen goods.

For an Inferior Good,if the Income Effect More Than Offsets