Giffen goods probably occur most frequently when the good in question is a:
A)luxury item like jewelry or yachts.
B)low-priced item that is insignificant relative to a person's total consumption.
C)a staple of a person's consumption pattern or represents a big share of a person's total expenditures.
D)technology-related item.

Question

Quizplus · Accepted Answer

Giffen goods are inferior goods for which the income effect dominates the substitution effect. This means that as the price of the good rises, the consumer's real income decreases, leading to a decrease in the quantity demanded. However, if the good represents a large share of a person's total expenditures or is a staple in their consumption pattern (like bread for low-income families), the income effect may dominate so much that the quantity demanded actually increases as the price rises. This is why Giffen goods are more likely to occur with staple goods rather than luxury items or low-priced insignificant goods. Giffen goods are goods for which a higher price leads to increased demand. This is because the good represents a significant share of a person's total expenditures or is a staple of a person's consumption pattern, such that a rise in the price of the good leads to a decrease in the person's purchasing power, forcing them to consume more of the inferior good. This is more likely to occur with goods that are necessary or essential for survival, such as staple foods. Therefore, option C is the most appropriate choice. Options A and D are incorrect because luxury goods and technology-related items are typically not essential for survival and are not likely to be Giffen goods. Option B is also incorrect because the magnitude of a person's consumption is not the determining factor in whether a good can be a Giffen good.

Giffen Goods Probably Occur Most Frequently When the Good in Question