Giffen goods have positively-sloped demand curves because they are
A)inferior goods with no substitution effect.
B)normal goods with no substitution effect.
C)inferior goods for which the substitution effect outweighs the income effect.
D)inferior goods for which the income effect outweighs the substitution effect.

Question

Quizplus · Accepted Answer

Giffen goods are inferior goods for which the income effect outweighs the substitution effect. This means that as the price of the good increases, consumers have to spend more of their income on the good, leaving them with less money to spend on other goods. This decrease in overall purchasing power leads to an increase in demand for the inferior good, even though its price has gone up, resulting in a positively-sloped demand curve.

Giffen Goods Have Positively-Sloped Demand Curves Because They Are