F Distinguish between Normal and Inferior goods, explain Giffen and Veblen goods

Question 1

Normal Good (+income effect)

Answer 1

QgoodX increases

Question 2

Inferior good (-income effect)

Answer 2

QgoodY increases

Question 3

Giffen Good

Answer 3

-Inc effect > +Sub effect , when price falls

Upward sloping demand curve

At lower prices, a small quantity would be demanded

Question 4

Veblen Good

Answer 4

Higher P makes the good more desirable

Idea: Consumer gets utility from consuming a good that seems to have high status

Question 5

Distinctions between Giffen and Veblen goods

Answer 5

Giffen goods are inferior (-Inc effect) and the theory is supported by rules of consumer choice

Veblen goods not supported by rules of consumer choice and the good is not negative income effect.