Quiz 8

Question 1

The income effect is generally__for a normal (or luxury) good and__for an inferior good.

Answer 1

positive; negative

Question 2

What is a Giffen Good? (Check all that apply)

Answer 2

1. A good which increases in demand as the price increases

2. A good which decreases in demand as the price decreases

Question 3

For a good to be considered a Giffen good, why is it necessary that the good take up a large part of your budget? (Check all that apply)

Answer 3

1. This must be true for the income effect to overcome the substitution effect
2. This is a characteristic of a scenario where a consumer substitutes largely between a staple food and a luxury good (a typical example of a Giffen good)

Question 4

A Giffen good will have__own-price elasticity: consumption will decrease when the price decreases.

Answer 4

positive