Which statement is FALSE?
A) A Giffen good must be an inferior good.
B) A Giffen good must be such that the income effect and the substitution effect move in opposite directions,and the income effect outweighs the substitution effect.
C) A Giffen good must be such that the substitution effect outweighs the income effect for an inferior good.
D) A Giffen good must have an upward-sloping demand curve.

Question

Quizplus · Accepted Answer

The statement that a Giffen good must be such that the substitution effect outweighs the income effect for an inferior good is false. In fact, the opposite is true – for a Giffen good, the income effect outweighs the substitution effect, which results in the upward-sloping demand curve. Choice A is true – a Giffen good must be inferior to follow the Giffen paradox. Choice B is true – the income and substitution effects must move in opposite directions, with the income effect dominating, for the Giffen paradox to occur. Choice D is true – the demand curve of a Giffen good must be upward-sloping to follow the Giffen paradox.

Which Statement Is FALSE