Ivan spends his entire income on two goods.One of them is a Giffen good.If the price of the Giffen good rises, demand for the other good must fall.

Question

Quizplus · Accepted Answer

For a Giffen good, as the price increases, the income effect dominates the substitution effect leading to a higher quantity demanded for the Giffen good. This often leads to a decrease in the demand for the other good, as Ivan's income may not be sufficient to purchase both goods at the new higher price of the Giffen good. Therefore, the statement is true.

Ivan Spends His Entire Income on Two Goods