For a Giffen good:
A) The price elasticity of demand is negative; the income elasticity of demand is negative.
B) The price elasticity of demand is positive; the income elasticity of demand is negative.
C) The price elasticity of demand is negative; the income elasticity of demand is positive.
D) The price elasticity of demand is positive; the income elasticity of demand is positive.

Question

Quizplus · Accepted Answer

Giffen goods are an exception to the typical law of demand, where despite an increase in price, the quantity demanded also increases. This is because the income effect of the price increase (leading to a decrease in real income) outweighs the substitution effect, causing consumers to buy more of the cheaper good as they can't afford the more expensive substitutes. The income elasticity of demand is negative because they are inferior goods; as income increases, demand for them decreases.

For a Giffen Good